Conditions Are Right

Now is the time for almost every homeowner.

Story by Tracy Dickinson
Featured in September/October 2020

Under normal circumstances, financial advisors recommend certain conditions before potential buyers apply for a home loan—favorable interest rates, reliable employment, and acceptable savings. But circumstances for home buyers today are nothing like normal.

Circumstances for lenders are nothing like normal either, and financial professionals are making adjustments daily to address that.

“It’s like someone stepped on the gas,” says Green State Credit Union’s Amy Smith. “The mortgage market went from normal to beyond full speed in a matter of weeks.” She says rates had been low even before the pandemic affected markets, so activity had already been on the rise. But Green State’s mortgage lenders have never been busier. “Across the board, the mortgage industry is 70% to 100% busier than it was a year ago. But we’re not operating with 70% to 100% more staff,” she says.

The historically record lows—near 2% at press time—have opened up the possibility of home ownership to more buyers than ever, so inquiries and applications have skyrocketed.

“Even before COVID-19, we anticipated this would be a busy year. Rates were already low. And with it being an election year, we knew that would continue. But rates just kept dropping, and people are wisely taking advantage of that,” Kim Downing-Manning of Bankers Trust says.

As a result, other aspects of the industry have seen dramatic increases in activity. Appraisers, inspectors, attorneys, and title companies have had to adapt to more digital methods when possible in order to continue working during office closures. Backlogs occurred occasionally during the quarantine, but most professionals were able to transition to paperless methods.

“We’ve never had a market where there was a boom in refinances and mortgages at the same time. Both sides of the industry are experiencing unprecedented highs right now,” says Smith. Typically, she explains, rates fall when the economy slows down. Currently, although unemployment is rising, inflation is dropping. Because mortgage rates are set by the individual lender, it’s not uncommon for lenders to increase rates in an attempt to slow the pace a bit when activity is extremely high.

“Normally there’s a bigger difference between mortgage and refinance rates,” Downing-Manning says. “Right now there really isn’t much of a difference. Rates benefit both, so whether clients are looking to buy their dream home and move up or put money into their current home—or even just reduce their interest rate—the time is right for all of those. Even with the uncertainties in the economy right now, folks who are employed feel pretty confident in their job situation after all the ups and downs lately, so they’re comfortable considering a move.”

“Unemployment income can’t be considered as an income source when applying for a home loan,” Smith says. However, someone who has been furloughed or has experienced cutbacks is not necessarily excluded from the current market opportunities. “We evaluate job history, past earning averages, and the likelihood that those past earnings will continue over the next three years,” she explains. Taken together, those factors are a more accurate assessment of a borrower’s ability to keep up with payments.

Maintaining a savings account balance is always advantageous when considering a mortgage or refinance application, both experts say. That remains true even in today’s unique market.

Smith says that’s important in this seller’s market because rates are so good that anyone who qualifies is shopping. “I’ve heard of sellers receiving as many as 20 offers on a home,” she says.

With more homeowners working from home, educating at home, and simply sheltering at home, the need for the right space has become more evident. The mortgage rates throughout the crisis have made it possible for homeowners to pursue options that might not have been possible under other conditions. •

Resources

• Kim Downing-Manning Bankers Trust
• Amy Smith Green State Credit Union