Getting a home loan right now
It has gotten harder to buy a house in some parts of the country, especially if you’re in a coronavirus hotspot.
Jeremy Kamm, an agent with Warburg Realty, says that buying a house in New York City isn’t impossible, but you’ll be doing most of your looking virtually (that is, on your computer or smartphone). In certain cities like New York, so much of the industry has slowed down, even if it hasn’t come to a full halt, the process may feel as if it’s frozen in place.
“It is certainly very difficult to assess present home values given the impact of the pandemic,” Kamm says. Your success in a city like New York may depend on how determined you are to have a new home. "I recently represented the seller for an off-market listing that has just gone into contract sight-unseen, so it is certainly possible to do a deal even in this strange environment," Kamm says.
You may find that it's relatively easy to buy a home in other parts of the country.
Not every city and town has been as profoundly affected by the coronavirus as cities such as New York City, Chicago or Detroit. People are buying homes, according to Bryce Linden, an attorney at Cook & James, an Atlanta real estate firm that was already doing virtual home closings before the pandemic. Linden says that in his area, there are fewer houses to buy due to home sellers deciding to stay put for now and sell sometime in the future, but closings are still happening, and his firm is doing a brisk business with refinances.
If you can get approved, the interest rates are great
Small wonder people are continuing to finance homes. "Many borrowers are taking advantage of low-interest rates that lenders are offering their customers," Linden says.
Nina Harrison, a broker-owner and mortgage loan originator with Motto Mortgage Superior in Germantown, Tennessee, echoes Linden's experiences. "Interest rates are still historically low, and homes in many markets continue to sell quickly," Harrison says.
The average interest rate for a 30-year fixed-rate mortgage has been under 4% for the duration of the coronavirus crisis and dropped to a low 3.31% in May. You may be able to afford more house during this time by calculating your mortgage with a low rate.
Lenders are making it harder to get approved
Harrison is overall optimistic about the ability of many homebuyers to get approved. Still, she does temper that optimism, saying, "The pandemic has thrown a few curveballs in the mortgage business which has caused extra protocols to be put in place before a mortgage can be secured."
She’s referring to safety protocols, but also loan procedures including:
- More paperwork. Harrison says that there will be “extra steps for verification of employment.” For instance, you’ll likely have to get a verification of employment within 10 days of closing from your employer, letting the lender know that, yes, you are still employed.
- Minimum credit scores have been tightened. For some time now, some borrowers could get away with having a minimum credit score of 580, sometimes even less, when purchasing a house. While it wasn't easy, it could be done. Many lenders are making it much harder for people with shaky credit to buy a home by raising the minimum credit scores you need to be approved. JPMorgan Chase & Co. now requires most borrowers to have minimum credit scores of 700. Wells Fargo requires a 680 credit score.
- Down payments are being raised. Chase had been allowing home borrowers to pay a minimum down payment of 3.5%. Now, it's 20%. In other words, it is harder to get a home loan. Instead of putting down a 3% down payment, you may be asked to put down 20%.
The homebuying experience has changed
If this is your first home purchase, you may not be too surprised since you'll have nothing with which to compare it. If you've purchased homes before, it's a whole new world.
"If you are deciding to buy a home now, you should expect that stricter health and safety requirements will be in effect," Linden says. "Many real estate agents are resorting to more virtual showings — for instance, Facebook Live and Zoom — to avoid direct contact with clients during the pandemic."
You aren't going to go inside many homes unless you are truly serious about buying one.
If you do visit a house before you buy it, expect to be asked to remove your shoes or wear paper booties over them, to wear a mask and to put in writing that you aren't sick.
Getting a car loan right now
The rules for getting an auto loan haven’t changed
Generally, the rules governing car loans are the same as mortgages, according to Weiss. They're just more magnified.
"The bottom line is that consumers that have a plan in place that helps them track their credit score, create positive cash flow, organize their financial documents and clearly show a healthy financial landscape are not seeing any issues with getting approved for new loans," Weiss says. He adds that from what he sees with consumers and car loans and all loans in general, "The process may take longer, but they are ultimately approved."
Again, you will need to have the ingredients in place, including income coming in, a reasonable credit score and maybe more of a down payment than you were expecting.
Auto sellers are making deals
If you are a reasonable credit risk for buying a car, you can expect some jaw-dropping deals. Since the pandemic began, many car manufacturers have been offering 0% interest loans, which may stretch out as far as six or seven years.
Some of the models offering 0% interest loans during the pandemic include Buick, Chevrolet, Chrysler, Dodge, GMC, Ford, Hyundai, Jaguar, Jeep, Mazda and Subaru, among others. Some auto dealers are also touting first-payment deferrals, where you can put off the first payment for 30 to 180 days.
Acura, Audi, Chrysler, Dodge, Jeep, Ford, Honda and many more automakers are offering deferred payment deals.
As an aside, if you're a first responder, you may want to ask your car sales rep if there are any exclusive deals for you. Ford, for instance, is offering a $500 cash rebate to medical professionals.
Deferred interest sounds excellent — but, remember, the interest is deferred, so you will pay it sooner or later. This method of financing can make your car even more expensive in the long run. If you need that first payment to be put off for several months, you might ask yourself if you can afford to buy a car right now.
If you take on a new car with a 0% interest loan and you're also offered the opportunity to defer payments, you may want to resist the deferral option.
If you’re employed, you can probably get a car loan
If you have shaky credit, you will probably not walk out of a dealership with a 0% interest loan for 84 months. But if you want a car and don't mind if the terms are not the best, you will almost certainly find a car loan.
"I don't think COVID-19's impact on market conditions has led to any limitations on lending. The markets are as liquid as ever. There's plenty of credit availability out there," says Steve Rinas, director of risk at Boro, a lender specializing in auto and personal loans for U.S. college students.
If you're unemployed right now, Rinas says that that will have an impact and increase your odds of being rejected for a car loan.
Rinas says Boro has been lending, or at least the loan requests have been coming in, "at the same frequency, if not higher, than before the virus hit."
Getting a personal loan right now
You can apply for a personal loan during this time, whether from a bank or an online financial lender, and you may well get approved, provided you are employed and are considered a good credit risk. Still, if you apply, you’ll want to keep several things in mind.
If you apply for a loan, assume that it'll take longer than usual to get an approval. This may be because of how chaotic things are rather than having anything to do with your financial health.
“Banks and non-bank businesses are overwhelmed with servicing requests following the CARES Act and in dealing with new loan applications. The system was not built to handle this type of demand,” says Brent Weiss, a certified financial planner and co-founder of Facet Wealth, a financial planning firm in Baltimore.
The old rules still apply
"When it comes to obtaining a loan in today's COVID-19 climate, nothing has changed. If you are still a good borrower on paper, banks are still loaning money. However, if you have faced some financial hardships, such as losing a job, it will negatively impact you," says Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan.
Foguth thinks you should consider applying for a loan, even if you don't need it right this minute.
"If you have not done so already, you should look at having a line of credit available on your house, if there is equity, or make sure that you have available cash or loans should you lose your job in the future or face any financial hardship," Foguth says. "It is better to be overly prepared by having these things taken care of while you still have employment, income and a good credit score."
Getting a credit card right now
If you have excellent credit, it's still worth applying for a new credit card if you need one. Otherwise, you may need to wait.
On an earnings call on March 31, Discover CEO Roger Hochschild said the company had taken on a "significantly more cautious view" when attracting new customers. Hochschild went on to say, "Actions we have taken since the crisis began include significant tightening of underwriting for new credit card and personal loan accounts with additional employment verification. And we've pulled back on balance transfer offers and [credit] line increases."
Richard Fairbank, CEO of Capital One, made a similar statement on an April 23 earnings call.
“We’re making choices that are right out of our playbook in downturns — and certainly, I think, make a lot of sense in this downturn — tightening our extension of new credit to avoid the heightened risk of adverse selection.”
Look at your credit card rewards
Credit cards may be tightening restrictions, but they do want customers. One way to keep their best customers is to make sure the rewards they’re offering meet the moment.
Some credit cards have been offering rewards that work well in a global pandemic and when people are sheltering in place.
Chase Sapphire, Marriott and American Express are among the credit cards offering extra points for categories like supermarkets, takeout, food delivery and streaming. If you have a rewards credit card but haven’t paid much attention to it lately, maybe you should.
You can still get a loan
In this economic climate, you can get a home loan, car loan, personal loan or credit card — provided you have a robust and healthy credit history and seem like the type of person who will be able to make your payments.
If you've struggled to make payments on time in the past and your credit score isn't going to win any awards, lenders will be less likely to take a chance on you.
If you are rejected for a loan, it isn't personal. It's all business, which is why it can feel so personal. The best course of action is to wait a few months, work on getting caught up on your finances and your life, and apply again.
Geoff Williams is a freelance writer for MoneyGeek.