“Millions of Americans, through no fault of their own, found themselves experiencing financial insecurity in 2020 due to the pandemic,” Tai Christensen, director of government affairs at CBC Mortgage Agency in South Jordan, Utah, wrote in an email. “For those who have recovered and regained job security, the financial setbacks from last year need not be a hindrance to a real estate purchase in 2021.”
But Christensen points out that prospective buyers will face some additional challenges and need to be prepared for homeownership.
Mortgage lenders understand that many people were hurt financially by the pandemic, Paul Buege, president and chief operating officer of Inlanta Mortgage in Pewaukee, Wis., wrote in an email.
Buege and Christensen suggest the following steps:
· Contact a loan officer: Buege recommends consulting a loan officer for individualized advice to overcome financial challenges. “For example, the loan officer might advise that you need to save more for a down payment, pay off some debt or wait to apply for a home loan until you have been back at work for a specific period of time,” wrote Buege. “In some cases, that could mean purchasing a home a little bit later than you anticipated. There may be loan options that would help you qualify right away, but your loan adviser could guide you toward a more financially sound option if you are willing to wait and put in some work to qualify for that program in the future.”
· Check your credit: Most lenders require a minimum credit score and timely payment history for a loan approval, wrote Christensen. “Begin by knowing what your credit score currently is,” she wrote. “The three major credit bureaus (Experian, TransUnion and Equifax) are all offering free weekly credit reports through April at annualcreditreport.com. Understand that recent late payments, collection accounts or other derogatory credit events can lower your score and cause qualification difficulties.”
· Understand the costs of homeownership: Home buyers should remember that full-time employment and qualifying income are requirements for home financing, wrote Christensen. “Home buyers should know what they can truly afford,” she wrote. “Renters may not know all the costs associated with homeownership, such as property taxes, insurance and property maintenance expenses.”
· Look for special home buyer loans: Buege notes that multiple mortgage options are available that could help buyers overcome a lack of savings or a lower credit score. “Both Fannie Mae and Freddie Mac offer great options to borrowers that are either first-time home buyers or meet certain income limitations that allow down payments of as low as 3 percent,” he wrote. “FHA tends to allow borrowers with credit blemishes or lower credit scores to still qualify for its loan programs, which require down payments as low as 3.5 percent. VA loans are great options for veterans with as little as zero percent down and flexibility in credit-qualifying.”
In addition, Buege recommends: “If you needed to dip into savings to make ends meet during the pandemic, there are low down payment options using private mortgage insurance available that could help you purchase a home.”
· Check out down payment assistance options: Most states have housing finance agencies that offer special loan programs and down payment assistance to borrowers with low to moderate incomes, wrote Buege. These programs typically have income and other financial requirements. A national option is the Chenoa Fund Program, wrote Christensen. Your mortgage lender can provide more information about state and local programs, or you can visit Chenoa’s website at chenoafund.org.
While you must be fully employed and have the income and credit to qualify for a home purchase, a lender can help you prepare for homeownership and identify potential sources to overcome a savings deficit or other challenges to homeownership.