The first few months of 2020 have been marred by outbreaks of the novel coronavirus, SARS-CoV-2, and its ensuing COVID-19 global pandemic. As of the time of this writing, over 1.4 million people worldwide have been infected by the virus, with over 400,000 cases in the United States alone. The result has been devastating on the US economy. Stock markets have suffered their worst quarter since 1987. In the last two weeks alone, nearly 10 million Americans filed for unemployment, a historic record. As you would expect, these tough economic times, and the start of a potential recession, have impacted the US real estate industry. In this blog post, we’ll focus on one aspect of the effect of the coronavirus. Specifically, we’ll answer the question: Is it hard to get a mortgage right now?
Related: Will the Coronavirus Cause a Repeat of the 2008 Housing Crisis?
Where Is Real Estate Activity Allowed?
Before we answer the main question, we need to answer another: Where is investing in real estate permitted at the moment? As of now, 38 states, Washington, D.C., Puerto Rico, the US Virgin Islands, and Guam have ordered the closure of non-essential business as part of their stay-at-home orders. In some states, real estate activity has been affected by these orders. As a result, buying an investment property with a mortgage might not be possible depending on where you are.
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States Where Real Estate Is an Essential Business
In response to the COVID-19 pandemic, the Department of Homeland Security, Cybersecurity, and Infrastructure Security Agency added real estate activity to the list of essential businesses. This includes “residential and commercial real estate and settlement services”.
Ultimately, however, it is up to state and local governments to decide if real estate activity fits the essential business classification. Here are some of the states that have deemed real estate an essential business:
- California real estate market
- Connecticut real estate market
- Florida real estate market
- Illinois real estate market
- New Jersey real estate market
- New York real estate market
- Tennessee real estate market
- Washington real estate market
- Wisconsin real estate market
Other states have deemed real estate activity as nonessential:
- Michigan real estate market
- Pennsylvania real estate market
- Vermont real estate market
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What This Means for Property Buyers
When it comes to securing an investment property mortgage, certain state and local markets will not permit the activity. For others, buying investment properties will remain feasible. While real estate agents were provided with unemployment benefits through the coronavirus stimulus package, it is likely that many will resume work. As a result, property buyers, depending on location, can still qualify for a mortgage.
Current Interest Rates and Mortgage Rates
The availability of mortgages isn’t the only change to the loaning process during this pandemic. Interest rates and mortgage rates have also been affected by COVID-19. Specifically, the federal cuts of interest rates will likely have long-term consequences for mortgage lenders and borrowers.
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Federal Cuts of Interest Rates
The Federal Reserve announced two major interest rate cuts within 2 weeks in March 2020. The most recent cut of 1% has led to a 0% interest rate, in the range of 0% to 0.25%. A 0% interest rate isn’t exactly new to the US. In 2008, the Federal Reserve had also reduced the interest rate to 0%. Its purpose then, as it is now, is to protect the economy from a recession.
Related: How to Recession Proof Your Rental Property
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Impact on Mortgage Rates
The cut in interest rates has had a substantial effect on the US economy. Interest rates of credit cards and saving accounts, for instance, have dropped. So, what is the effect of the interest rate cuts on investment property mortgage rates?
Overall, mortgage rates have decreased, and will likely continue to do so, due to the interest rate cuts. However, it is not probable that real estate investors will see a 0% mortgage rate in 2020. Federal rates influence short-term loan rates more than long-term ones, such as 15-30 year property loans. Nonetheless, mortgage rates have hit historic lows. This is apparent when looking at the mortgage rates dating back to December 2019 to now, according to Freddie Mac:
Monthly Average Mortgage Interest Rate on a 30-Year Fixed-Rate Mortgage
- December 2019: 3.72%
- January 2020: 3.62%
- February 2020: 3.47%
- March 2020: 3.45%
- Week of April 2, 2020: 3.33%
Monthly Average Mortgage Interest Rate on a 15-Year Fixed-Rate Mortgage
- December 2019: 3.18%
- January 2020: 3.07%
- February 2020: 2.97%
- March 2020: 2.89%
- Week of April 2, 2020: 2.82%
Changes to the Mortgage and Overall Buying Process
Aside from the restrictions of real estate activity in a few states and federal interest rate cuts, the process to get approved for a mortgage has remained relatively unchanged. However, there are a few differences that investors should take note of.
Firstly, the demand for a mortgage loan has significantly increased. As you would expect, this is due to the interest rate reductions and subsequent mortgage rate decreases. Competition was already a hurdle before the pandemic, as the national market was a hot seller’s market. Mortgage lenders are also overwhelmed with multiple refinancing applications. With this being the case, it is best for real estate investors to wait before applying for a mortgage. Mortgage lenders will eventually handle the surge in refinances and mortgage loan applications. Mortgage rates are also projected to continue decreasing throughout 2020. When the situation has settled down, property investors will find the best opportunity to get approved for a mortgage.
Once you are in the process of qualifying for a mortgage loan, expect a few safety changes to the process. At the moment, the COVID-19 pandemic is estimated to slow down in the summer. As a result, investors and real estate agents should not expect ‘business as usual’. New York, for instance, has implemented virtual showings of properties to maintain social distancing. Be sure to review your state’s pandemic regulations and stay safe.
Related: Coronavirus Impact On the Mortgage Industry 2020
Is It Hard to Get a Mortgage Right Now?
So, how hard is it to get a mortgage right now? For states that deemed real estate activity as non-essential, securing a mortgage is either not possible or likely. In the many states that permit real estate activity, you can expect high competition among investors due to low mortgage rates. Once the dust has settled, you should adhere to any safety regulations when buying an investment property as required in your area. Aside from these impacts, there are no overall changes to new mortgage loan requirements, such as those regarding down payment, equity, and monthly mortgage payments.
For more on the effect of the coronavirus on US real estate, read the daily Mashvisor blog. To take advantage of the low mortgage rates, CLICK HERE for 15% off all Mashvisor plans. This will give you access to the tools you need to find the most profitable investment properties for sale.