by Michael H. Wasserman
I’m not sure how you spent your Memorial Day weekend, but if you are in the market to buy a new home in or around Chicago, you very likely spent much of it out and about looking at new homes. By all accounts real estate activity right now is quite strong despite a limited available inventory of homes to choose from. Buyers seem to be re-energized right now and the effects have been staggering. Most buyers who have contacted me this week have won out or are still engaged in bidding wars over properties they like. Brokers are reporting the clients are back out, looking at 5-10 homes before making offers. Our initial fears of the COVID-19 pandemic seem to be waning. Confidence in our Realtors’ ability to keep us safe and secure in the house hunting process is increasing. We have seen more new contracts come into the office in the past seven days than we had in the preceding three weeks combined.
If you are a seller waiting on the sidelines before listing (or re-listing), it might be the time to get into the marketplace right now.
With that said, clients are all expressing the same concerns to me – will the mortgage lending go thru or is COVID-19 causing stumbling blocks. Understandable concerns. Headlines over recent weeks have reported lenders eliminating some loan programs altogether and others tightening lending guidelines on remaining purchase money loans options. Job insecurity factors in here too. No one wants to lend to a borrower who does not have a source of income from which to repay the loan. I am getting a lot of questions about financing.
So, I have been asking some of my favorite Chicago area loan originators for their thoughts. Michael Chamberlin is a vice president and area manager for Inland Bank. Steve Schneider is a senior loan consultant at LoanDepot.
Tougher Lending Standards:
Lenders are adding new requirements in evaluating loan applications. According to Steve, borrowers who are engaged in “high risk” industries, employers on the “Worker Adjustment and Retraining Notification” (WARN) List, self-employed borrowers, borrowers employed by family members and borrowers who intend to rely on rental income all should be prepared to furnish additional documentation of earnings, and expect to have to update that documentation shortly before closing.
Mike tells me some second mortgage companies have cut their loan to values down to 85% and others have suspended home equity loan programs altogether but assures that there are still home equity loan available. They are getting stricter on credit just like first tier lenders.
The Jumbo market is extremely fluid at the moment. Mike says that most jumbo loan lenders now require 20% down payments and have gotten stricter on scoring of credit ratings and debt ratios. They are still available but at higher interest rates. There are simply fewer lenders willing to lend and they are charging a premium to do so. Steve advises that there are at least some lenders still offering loans with 10% down but not many. The important thing is for consumers to maintain communication with their loan officers and to never assume that things are just moving on normally.
We all experienced some delays earlier in the year when interest rates dipped, and lenders worked through large numbers of mortgage refinances applications. According to Mike, underwriting “turn-around” time has been improving as lender have run off those loans and as the market paused during the initial weeks following the stay-at-home orders were entered. The biggest hurdle right now is appraisals. They are causing some bottlenecks. Steve echoes that analysis but indicates that timelines are completely dependent on the specific lender. Many can still close within 21 days of contract, but the questions whether it’s truly necessary to rush through a purchase like that. Third party situations beyond the lender’s control can cause delays that throw such an aggressive timeline out the window. He is referring to condo association responsiveness to necessary lender questionnaires, appraisal delays and confirmation of borrower insurance policies. “If everyone is not on the same page, then deadlines could be missed. It’s better sometimes to word a contract more conservatively, like “45 days or sooner.”
In sum, the lenders are still lending but the prices consumers pay for those loans may be greater and the already rigorous documentation required to get a loan is getting stricter.
We survey lenders in this fashion regularly so that we can best counsel home buyers and sellers in their purchase and sale transactions. To learn more, please feel free our office or either of these fine gentlemen.