By Catherine Reagor| April 23rd, 2020
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Interest rates are hovering near record lows, but getting a mortgage is tougher for many borrowers due to the COVID-19 economic fallout.

More lenders, uncertain about the economy, record unemployment and future losses due to mortgage forbearances or payment suspensions, are requiring higher credit scores and down payments.

Banks and other mortgage lenders also are pulling back on some loans including home-equity lines, requiring more employment documentation and not allowing borrowers to lock in on the current low rates.

Obtaining a mortgage hasn’t been this difficult since 2015, according to the Mortgage Bankers Association’s latest home loan Credit Availability Index.

The pullback by lenders comes as 30-year mortgage rates hover around 3.3%.  

“Watching the mortgage market right now is like creating a new reality show called ‘Unintended Consequences … COVID-19 Edition,’” said mortgage expert Amy Swaney, who is branch manager of Phoenix’s Citywide Home Loans.

She said besides economic uncertainty and swings in the stock market, losses due to a rise in low-rate refinancing and the federally required forbearances for borrowers hurt by COVID-19 during the past month have the mortgage market “changing daily for borrowers.”

The number of U.S. homeowners receiving forbearance help that suspends their mortgage payments for up 12 months due to lost income or jobs during the coronavirus crisis climbed to 3 million last week.  

Mortgage market update

Here's a rundown of the new lending conditions for borrowers who want to buy and homeowners who want to refinance or tap their equity.

  • JPMorgan Chase, one of the biggest mortgage lenders in the U.S., has raised its lending standards and is now requiring homebuyers have a 20% down payment and a 700 FICO credit score to get a home loan. Homeowners who want to refinance with Chase also must have the higher credit score.
  • Other big mortgage lenders Wells Fargo and US Bank raised their minimum score requirements for borrowers to 680.
  • Wells Fargo increased the credit score for new home-equity loan borrowers to 720.
  • Chase is “temporarily pausing” its home-equity line lending.
  • Most lenders are doing several employment checks throughout their loan processes now.
  • Most lenders aren’t offering long-term interest rate locks anymore.
  • Fewer lenders are funding bigger, jumbo loans that aren’t backed by federally owned Fannie Mae or Freddie Mac.
  • Some smaller lenders have stopped funding mortgages.

“The fall in employment and the increase in bank mortgage standards means fewer people will be able to qualify for mortgages, at least for a while,” said Scottsdale HomeSmart real estate agent and economic data tracker John Wake. “But if you can still qualify for a mortgage right now, you'll have a bit less competition from other homebuyers.”

Tips to get a mortgage

Mortgage applications climbed 7% last week, according to the Mortgage Bankers Association. That includes loans for buying a home, refinancing and taking out a line of equity. Here are four tips from the experts: 

  • Lock in on a rate if you are happy with it, said Swaney. The loan or rate might not be available tomorrow or next week.
  • Work with your lender to prove your employment verification so it doesn’t slow down closing.
  • Don't give up. Borrowers, particularly those buying their first homes, with FICO credit scores of 620 or lower can still get FHA loans with 3.5% down payments.
  • Don’t wait too long for rates to fall, said Dean Wegner, branch manager of Guardian Mortgage of Scottsdale.

“What could happen and did happen to many in the last 45 days, is there has been so many program changes that many people lost any opportunity to refinance or buy,” he said.  “My advice would be to strike while the iron is hot and capture the savings with lower rates.”

Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @Catherinereagor.

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