Home equity loans are an attractive borrowing choice because you get the best of both worlds: the freedom to use the funds for anything you want, just like you would with a personal loan or a credit card, but without the high-interest rates and fluctuating payments.
But given the current economic and global pandemic state, Americans are looking into different ways to receive extra cash. If approved you can use it to pay debts or home repairs but you can also use it to cover unexpected medical costs. Sadly, due to COVID-19, this could be a big factor to get this type of loan. Yet, it’s important that you know what has changed for home equity loans during this pandemic.
A new rule from the Consumer Financial Protection Bureau speeds up home equity loan closings if homeowners are struggling because of the COVID-19 crisis. But the pandemic has led some lenders to pause applications for home equity loans, and others have enacted stricter lending standards.
This credit tightening is due to a number of factors. The unemployment rate climbed to the highest rate in history, reaching 14.7% for the month of April, with over 23 million people out of work. With unemployment numbers changing weekly, lenders are having to request multiple employment verifications, some as late as the same day of closing, to ensure a borrower’s creditworthiness.
Other changes banks have been making include increasing the required minimum credit score, requiring a higher down payment, and placing caps on the amount of money the bank is willing to refinance.
HELOCs have also been affected by these stricter loan requirements. Not only are banks increasing credit score requirements, they’re also limiting the amount of money they will lend for a home equity loan as well as lowering the percentage of the home’s equity they are willing to lend.
Despite the difficulty in getting these types of loans, you can still find lenders who are accepting applications for both cash-out refinances and HELOCs although, according to both Molitor and Wilson it may be easier to access a HELOC at the moment. Before applying with any lender make sure what their requirements are to see if you qualify, and make sure the loan you’re applying is the right choice for your needs.