Smart Moves by Ellen James Martin

Applying for a Mortgage During the COVID Crisis

An MRI tech in her 40s was stunned last week to get handed a furlough notice. After all, as a medical worker for a hospital, she’d imagined herself immune to layoffs. But due to COVID-19 -- and the economic upheaval it’s caused -- her whole financial outlook has changed unexpectedly.

As an avid saver for many years, the tech has sufficient funds to pay her bills for months ahead. Moreover, she’s been assured by her hospital she’ll be back on the job as soon as that’s safely possible. Even so, she fears her plans to refinance her high-rate mortgage to a low-rate one must be put on hold.

Mortgage specialists say the tech is undoubtedly correct that she couldn’t currently qualify for a new home loan, despite her employer’s assurances.

“When you’re applying for a mortgage, furloughed income doesn’t count, and the same is true of unemployment benefits. You have to have regular income to qualify,” says Dale Robyn Siegel, author of the “The New Rules for Mortgages.”

Since the COVID-19 crisis began, Siegel says many lenders have tightened the guidelines they use when qualifying prospective borrowers. To get a home loan -- whether to refinance or purchase a property -- applicants need larger down payments and better credit scores than before.

It’s not only the rising rate of joblessness that has lenders nervous. They’re also unhappy with new federal rules that have allowed several million borrowers to postpone payments on their government-backed mortgages for up to a year.

“Even people with perfectly solid jobs and plenty of money in the bank are taking advantage of the new mortgage-forbearance program. That’s why some lenders are raising the bar high for new applicants and others are backing out entirely, especially when it comes to making jumbo loans,” says Mike Hummel, the managing director of a mortgage firm, who’s worked in the field since 1997.

Keith Gumbinger, a vice president at HSH Associates (, which tracks lenders across the country, says the challenging mortgage market now facing consumers is akin to the one immediately after the real estate crisis of 2008. But in some ways, he contends consumers will be better positioned once the pandemic subsides.

For instance, he says it’s likely that after she’s back on the job, the medical tech wishing to refinance her mortgage will likely qualify for a new home loan, despite the interruption of her employment.

“Over time, I think a lot of lenders will be understanding of these special circumstances. This situation is totally different than the Great Recession,” Gumbinger says.

Still, he urges anyone planning to apply for a mortgage in the future to take steps now to strengthen their qualifications and identify sympathetic lenders.

“Rather than expecting lenders to beat a path to your door, you’re going to have to do some of the digging yourself to find the right folks to help you out,” he says.

Here are a few pointers:

-- Consider local lenders as a source for mortgage finance.

In the current economic period, the role of some national and regional lenders has diminished. Some have lately signaled their lack of interest in making mortgages through unusually stringent underwriting standards. They’d rather pursue other lines of business, which they consider safer bets.

Meanwhile, the role of local mortgage lenders, especially smaller shops, has become somewhat more prominent. Because of that, Gumbinger says many home-loan applicants could be especially well served these days by seeking out nearby lenders with whom they already have established relationships.

“Look locally at credit unions, small commercial banks and savings banks. They are absolutely competitive for your business,” he says.

-- Count on referrals to find a solid lender.

When hunting for the best mortgage lender, Gumbinger urges you to do a broad search.

Friends who’ve bought a home or refinanced a mortgage are often an excellent source of names for good lenders. If possible, try to get referrals for lenders your friends have used in recent months.

Another good source of referrals are real estate agents. Ask for at least three names of well-established lenders who’ve proven dependable.

“Realtors have their finger on the pulse of the mortgage industry. They know who’s weathered the storms of change in the past and who you can count on to get your financing through in the future,” he says.

-- Shop hard for the best mortgage rates.

Before committing to one lender, it’s always a good idea to do comparison shopping. But scouring the market for the best possible terms is especially wise these days, given that rates are hovering near historic lows.

“It’s true that a number of mortgage sources are now in retreat and others have become very wary. But remember that those lenders whose only business is making home loans -- including mortgage brokers who work with multiple financing sources -- don’t make a living unless they get their transactions to the finish line,” Gumbinger says.

(To contact Ellen James Martin, email her at