Everyone has faced many changes and challenges over the last month due to the COVID-19 pandemic. The mortgage industry is no different and has seen many changes in regards to underwriting and loan approval requirements.
Minimum credit score requirements have increased, along with some down payment requirements. Let’s break down some of the latest program changes below.
Please note* Loan program changes have been frequent in recent months but should stabilize very soon. Most experts agree the mortgage guideline changes are temporary and should return to normal once Coronavirus fears subside and the economy fully reopens.
Many of the higher LTV loan limits have been reduced. 95% financing options are still possible, but many have been reduced to $850,000-$1,000,000 loan amounts for most of the country. High costs housing locations have limits around $250,000 higher.
Credit score requirements are about the same and depend greatly on the down payment amount. Mortgage payment reserve (savings retained after closing) requirements are a bit higher.
Purchase loans are still permitted up to 97% financing for qualified buyers. Cash-out refinance transactions have been limited to 80% by many lenders. Credit score requirements are greatly based on down payment percentage.
The Federal Housing Administration (FHA) guidance permits FHA loans with credit scores in the low 500’s. However, even with this, many lenders and banks have their own in house “overlay” requirements that increase this. In normal cases, lenders will approve max 96.5% financing FHA loans with credit scores down to 580. However, it’s being reported that some lenders are requiring a minimum 640 credit score and in some cases 680 for FHA purchase loans.
As for refinance transactions, FHA cash-out refi limits have been reduced to 80% loan to value in most cases.
USDA & VA Loans:
No real changes for now to purchase transactions. VA cash-out refinance loan to value limits (typically 100%) has been reduced to 90% by some. USDA has never permitted cash-out refinance.
If you were pre-approved for financing weeks ago, it may be a good idea to speak to your loan specialist to make sure your approval is still valid. The good news in all of this is mortgage interest rates remain low overall. Homeowners looking to reduce their interest rate and/or term still have plenty of options available.