Record spikes in jobless claims are creating major roadblocks for consumers who thought that they’d like to save money by snagging a lower mortgage rate.
Maybe, you thought you might even refinance the mortgage to get your hands on some cash now by taking out some equity that’s built up as your home’s value has grown? Maybe you’re looking at your house as a piggy bank after losing a job during the coronavirus pandemic?
It’s a thought, but it’s a strategy that likely won’t work.
“For people who are unemployed, it’s going to be more difficult to qualify for a mortgage at this time,” said Bill Banfield, executive vice president of capital markets for Detroit-based Quicken Loans.
“The ability to repay debt is based on the person’s income.”
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It’s not to say that people who aren’t working can’t refinance their mortgages, he said. Retirees, for example, may be able to refinance a mortgage if they can point to a steady pension or annuities that can be used to repay the debt.
Yet things are getting tougher for many people who want to refinance a mortgage than they were back in February and early March.
We’ve seen dramatic, unexpected job losses associated with shutting down much of the U.S. economy to combat the coronavirus. During the week ending March 27, a record 6.6 million Americans applied for jobless benefits.
“Unemployment will certainly be an issue for folks trying to refinance,” said Keith Gumbinger, a mortgage expert and vice president at HSH.com, a mortgage information website.
While many people will receive jobless benefits, Gumbinger said getting an unemployment check typically isn’t viewed as a reasonable stream of income, which is necessary to qualify for a mortgage.
Federally-backed mortgages, including Fannie Mae and Freddie Mac, do allow for the use of unemployment benefits in the case of steady but seasonal employment.
A seasonal worker, for example, can document that they received jobless payments consistently for at least two years and be considered for a mortgage.
“Unemployment compensation cannot be used to qualify the borrower unless it is clearly associated with seasonal employment that is reported on the borrower’s signed federal income tax returns,” according to regulations. And the lender must verify that the seasonal income is likely to continue.
No doubt, ultra-low mortgage rates make refinancing a mortgage quite tempting.
“Certainly, interest in refinancing has again kicked higher,” Gumbinger said.
Gumbinger noted that the pattern of refinancing activity in the last four weeks was up 78.6% for the week ending March 6, down 10.4% for the week ending March 13, down 33.8% for the week ending March 20 and now up 25.5% for refinance applications for the week ending March 27, based on data from the Mortgage Bankers Association.
The average conforming 30-year mortgage rate last week was 3.33% — down only slightly from a 3.6% range in January. A year ago, during late March, the average was 4.12%.
“Rates are still very low for the conforming, government-backed loans and it continues to be a refinancing bonanza,” said Greg McBride, chief financial analyst for Bankrate.com.
But he warned that lenders are experiencing a backlog of refinancing applications. Borrower demand has been exceeding the lender’s capacity to handle refinancing mortgages in many cases, McBride said.
Bankrate.com’s most recent research indicates that the average 30-year fixed rate is 3.74% as of the week of April 1. The average 30-year rate on a jumbo mortgage is 3.92%. Jumbo loans, which often require larger down payments, apply to mortgages that exceed $510,400.
While the coronavirus pandemic is stressful and shocking to everyone, we all aren’t facing the same challenges and issues. So you have to figure out what works for you.
“If you have lost your job or expect to, then refinancing probably won’t be possible,” said Mark Zandi, chief economist for Moody’s.
If you have lost a job, talking to your lender or mortgage servicer about coronavirus mortgage relief options, such as a way to delay making payments for 90 days, could make more sense.
“Asking for forbearance, which you should get if you have a FHA, Fannie or Freddie loan, should be your first priority. If your job isn’t threatened, and your existing mortgage has anything more than a 4% rate, you should be refinancing,” Zandi said.