How 2020 Affected the Mortgage World

 In Common Questions, Qualifying for a Mortgage

After such a crazy year, we thought it would be helpful to let you know what has changed in the mortgage business in the past year.  Here’s the scoop.

These are the things that have changed in the past year, in no particular order:

Interest rates have dropped.  Rates are at all-time lows, and have been for quite a while.  Rates are determined by the demand for the mortgage bonds that Fannie Mae and Freddie Mac sell, and there is a huge demand for those bonds.  The more demand, the lower the rates.  In addition to all the other bond purchasers, the Federal Reserve (the central bank in the US) has been purchasing tens of billions of dollars of mortgage bonds each month, and has said that they intend to continue buying them until the economy is back on track.  That will keep rates extremely low for the foreseeable future.

The pandemic has had little effect on the ability of most people to qualify for a mortgage.  The rules tightened up in early 2020, but have since relaxed, almost to the point where they were before COVID-19 spread everywhere.  There is additional documentation required for self-employed borrowers, but only to show that the borrower’s income has stabilized.  If you can document that your income is consistent, you should be able to qualify for a loan, provided, of course, that your income is sufficient to pay all of your bills.  

Refinance rates are slightly more expensive than purchase rates.  The government has imposed a 0.50% pricing adjustment to all refinance transactions because of the perceived risk that the pandemic might have on the mortgage industry, but that is NOT an increase of 0.50% in interest rate.  It is an increase in the amount of points you must pay to get a particular rate.  A 0.50% increase in points roughly translates into a 0.125% increase in interest rate.  Bottom line is that refinance transactions are about 0.125% higher in rate than purchase transactions.

The foreclosure tsunami that was predicted because of the pandemic has failed to materialize.  That’s because the value of houses has increased so much in the past few years, homeowner’s sell their houses, rather than go into foreclosure, if they run into financial trouble.

Values of houses continued to go up dramatically in 2020, and there is no end in sight for the Denver-metro market.  As long as people are still moving to this area, house values will continue to go up.  It’s nothing more than supply and demand.  

To sum it all up, the pandemic disaster of 2020 did little to upset the housing market.  There is no indication that things will change in 2021.  If you want to purchase a house, now is a good time to do it.  If you want to refinance an existing mortgage, now is the best time in history to do it.  Want to purchase or refi?  Contact us today and see how easy it is to get approved.

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