By Tara Mastroeni, Forbes
To say that coronavirus has a marked impact on the mortgage industry would be an understatement. As interest rates continue to be volatile and lending standards tighten up across the board, I decided to take a closer at what specific effects the virus is having on mortgage lending and what those effects mean for future buyers.
To do that, I spoke with Steve Kaminski, Head of US Residential Lending at TD Bank. Here’s a look at the insights that he was able to share with me.
On the changes we’re seeing in the mortgage process as a result of COVID-19:
“Underwriting a mortgage has become even more complex in the COVID-19 environment,” says Kaminski. “It's important to remember that many aspects of the mortgage process have traditionally taken place in person, things like securing a notarization, conducting an interior appraisal of a home, signing closing documents.”
In addition to having to move their services online, he points to the fact that in many regions the third-party partners that lenders rely on - the appraisers, the title officers, and the real estate agents - were put on hold for a time as they were considered non-essential businesses.
As for what this means going forward, Kaminski says he’s seeing that lenders are learning on the fly how to offer their services remotely. He notes, however, that there still are some kinks in the process and that borrowers should be prepared for occasional delays.
On why are we seeing some lenders tighten up their lending standards:
One particularly interesting phenomenon we’re seeing in light of the virus is that lenders are tightening up lending their standards. This means that, while interest rates are impressively low, actually getting approved for a loan is tougher than it has been for a while.
For his part, Kaminski attributes this to the economic uncertainty that the virus has caused. Staggering unemployment rates across multiple industries have caused lenders to want to try and mitigate their risk of not being repaid.
When asked how this will effect the mortgage process, he says that borrowers can anticipate more red tape than usual when it comes to getting a clear to close.
“Borrowers may be asked to verify employment again closer to their closing date or to make sure documents to verify their income are more current,” he explains.
On what can would-be-buyers do to better prepare for the mortgage process in light of all the changes:
Now more than ever, it's important to speak with a lender early in the home-buying process,” he says, “and to be transparent and upfront about your financial situation.”
He also advises being proactive and asking the lender what documentation they need in order to be approved for a loan. In this environment, he says that documents proving your income - W-2’s, tax returns, recent pay stubs - are especially crucial.
For those who are just starting the process, Kaminski recommends taking the to get your finances in the best shape possible before applying for a loan. He explains that staying on top of your credit score and paying down as much debt as possible are the keys to being approved.
On what buyers can do to ensure that they'll be offered the best possible interest rate:
Kaminski cautions that being given an interest rate by a lender is a much different process than reading the rates you’re quoted online. Those rates, he says, often don’t tell the whole story. Rather, your interest rate will be determined by a multitude of factors, including your credit score, how much you’re borrowing in relation to the value of the property, and your loan term.
He believes that a borrower’s best bet is to have a lender run a couple different loan scenarios for them and then to ask them to explain the results.
“For example, while a 30-year fixed rate provides security, it may be more expensive over the life of the loan.” Kaminski advises. “For a borrower who plans to be in their home for less than a decade, a 5-year or 7-year adjustable-rate mortgage may be a more appropriate choice and come with a lower interest rate. “
However, he is adamant that, in the above scenario, the borrower needs to be made aware that the loan may adjust to a higher rate after the initial fixed period. That’s why, in his view, borrowers shouldn't hesitate to shop around for the lender who is the best fit. He suggests looking for a knowledgeable lender who can help guide them through the process.
On the lasting effects of COVID-19:
These challenging times have also reinforced how critical human connection is to the mortgage process,” says Kaminski.
He emphasizes that buying a home is stressful, regardless of whether or not there is a global pandemic. In his experience, while borrowers do appreciate the convenience of digital tools, what they really value is the expert guidance they receive from their loan officers.
He concludes the interview by saying, “[The loan officers are the ones who] can personalize and humanize what can be an otherwise overwhelming process.”