As the number of Americans out of work or laid off has grown to record numbers due to the coronavirus pandemic, a large number of homeowners are searching for ways to be able to simply cover their living costs. During this time there has been an increase in owners looking to draw from their home equity as a source of emergency funds.
Home equity is the difference between the balance owed on your mortgage and the current value of your home. In the first quarter of 2020, one in four homeowners across the country were considered what is called “equity-rich.” A statement that describes any homeowner whose remaining mortgage balance is less than 50 percent of their home’s value.
Though a significant number of homeowners are equity rich, the tightened credit score requirements to qualify for equity loans are locking many homeowners out of the possibility of liquidating a portion of their equity.
As a whole, American homeowners possessed about $6.2 trillion in tappable equity at the fourth quarter of last year. Tappable equity is the amount you can borrow against your home up to 80 percent of the home’s total value. The average amount per homeowner worked out to be around $119,000. But in the world of equity loans, having plenty of equity in your home and qualifying to take out that equity are two very different things. Especially since the pandemic began. Some larger banks like JP Morgan Chase and Wells Fargo have even put a stop to accepting new home equity loan applications.
Lenders are nervous right now because of the highest levels of unemployment for several decades. In addition to this, the mandatory laws to provide forbearance right now are causing banks to shift funds to cover forbearance payments instead of being able to lend funds out. They are also reluctant to open a new loan with a high risk of it going into another forbearance.
There are still lenders out there offering home equity loans, cash-out refinance options, and traditional refinance. Most of these loan products are now requiring much stiffer qualifiers than they were just 8 months ago. Right now it is very hard to find a lender that will approve a loan application for anyone not currently receiving a paycheck. Lenders will look for homeowners to co-sign with someone who is currently employed or if there is still one working homeowner in the house who is not the primary borrower they will look for them to prove enough income to cover payments and switch them to the primary. FHA loan rules currently state that if you have been out of work for sixth months you must be re-employed for a minimum of six months to qualify for a new loan.
Each lender has its own final rules for qualification but most home equity products still available are requiring higher FICO scores to begin with. For example, the average required FICO credit score for a cash-out refinance right now went up from 640 to 680.
If you are unsure if you will qualify for a loan right now but would like to save money on your home payments or look into the possibility of using your home equity to help make ends meet right now please contact me any time. I would love to help you look over the options available to you.