We can't say we didn't see it coming. Lockdown round two is upon us. What does that mean if you're trying to buy a house or refinance your mortgage?
The good news (and the unfortunate news) is that lenders want to make sure you can make your mortgage payments - now and in the future. If your qualifying income is earned in an industry affected by the governor's latest edict, expect additional scrutiny of both income and employment.
If you've been laid off or furloughed and you're not working at all, you won't be able to use income from your job to qualify until you've returned to work. If you've had your hours at work reduced, you'll only be able to use your reduced income to qualify.
Unemployment income and paid vacation can't be used to help you qualify for a mortgage. When evaluating income, your lender must be able to make a reasonable assumption that the income will continue for at least three years. Your unemployment compensation is (hopefully!) temporary. It cannot be used to help you qualify for a home loan.
If you're self-employed, you'll have to prove that you're currently open for business and earning income. You may be asked to provide executed contracts or signed invoices, current business bank statements showing receipts deposited, or a business web site that indicates the business is open and operating (for instance, appointments for estimates or services can be promptly scheduled). If you own a business that is currently closed due to a government mandate, you will not be able to utilize income from that business to qualify for a home loan.
Your lender will verify employment several times throughout the process: usually when your paperwork is submitted to processing or underwriting, right before the closing documents are ordered, and again before your loan closes or funds. You must be employed throughout the process to use income from employment to qualify. Additionally, if you work in an industry whose activities are currently restricted, your employer may be asked to provide additional verification that they intend to keep you employed (and earning income) for the foreseeable future.
Once you return to work, if you're an employee who works full time (40 hours per week), you can use your regular 40-hour per week income in qualifying. If you're an employee and you work varying hours, lenders must average your income for the previous year - including the time that you weren't working.
So what's the good news?
- Appraisal waivers! We're seeing more and more transactions that don't require appraisals. Special COVID guidelines also allow other transactions to proceed with "exterior-only" appraisals. This will help your transaction close faster and save you money!
- Low interest rates! Despite wild fluctuations post-election, interest rates are still at historic lows. You should have plenty time to lock in a great interest rate, even if you have to wait until the current lockdown is over. But don't wait too long! Once a vaccine is available to the masses, expect interest rates to climb.
- Smoked turkey breast! You read that right. Mo-Chilli BBQ has a special Thanksgiving Day menu available for you to enjoy with your (immediate, socially distanced) family this turkey day. Head on over to their web site for details and enjoy turkey, chicken, brisket by the pound, and take-and-bake side dishes. Hurry! Orders must be in by Sunday, November 22 at 7pm. My mouth is already watering.