Mortgage rates could stay low but there’s a catch

Superlow mortgage rates, which took hold back in early April, are now amazingly stretching into summer, giving many who didn’t refinance yet a second chance.

“The average 30year fixed mortgage rate is 3.56%, close to the record low of 3.50%,” said Greg McBride, chief financial analyst at Bankrate.com.

Essentially, mortgage rates have hovered below 3.6% ever since the U.S. economy was rocked by widespread shutdowns to stem the spread of COVID19, particularly in major metros such as Detroit and New York.

The average 30year rate was 3.9% back in December and 4.54% back in late February 2019.

What’s possible: Mortgage rates could remain quite low for several weeks or months.

“I expect fixed mortgage rates to remain between 3% to 3.5% over the coming year,” said Mark Zandi, chief economist for Moody’s.

The catch, if you will, is that many bargain rates will be available mainly to borrowers with good credit, proof of income and enough equity built up in their homes as lenders try to limit their losses should a recession last far longer than many would expect.

What happens if your credit score is below 700?

Higher hurdles and tighter lending standards could prove to be a roadblock for some who would like to take advantage of lower rates, including small business owners and others who may have difficulty documenting their income.

“Credit has tightened notably for borrowers with credit scores below 700, those seeking a cashout refinance, or for jumbo fixedrate mortgages,” McBride said.

Jumbo loans, which often require larger down payments, apply to mortgages that exceed $510,400.

“Cashout and jumbo fixedrate mortgages are still available, but considerably less so and at a higher markup relative to a conforming, rateandterm refinance.”

If you’re looking to refinance or take out a new mortgage, it’s increasingly important to make sure that you’ve checked your credit report for free at AnnualCreditReport.com, pay down your credit card debt, and stay clear of opening new credit cards. You want to make sure you pay on time every month.

Slowdown makes lenders cautious

More than 40 million American workers have filed for jobless claims since midMarch as restaurants, factories, stores and other places of business began to close in order to limit social contact and the spread of the virus.

Those high jobless rates — and the expectation that home values ultimately will drop or soften in the future are driving some lenders to take a more cautious approach, according to Keith Gumbinger, a mortgage expert and vice president at HSH.com, a mortgage information website.

“Certainly, with risks on the rise,” Gumbinger said, “it’s to be expected that at least some lenders would be trying to limit their exposure to potential future loss.”

Even so, not all lenders are reacting the same way. “So,” he continued “if a consumer cannot find a lending response they need on one side of town they will need to keep looking.”

JPMorgan Chase, for example, now requires that customers who apply for a new mortgage must have a credit score of at least 700 and make a down payment equal to 20% of the home’s value. Chase also has stopped approving new home equity lines of credit.