The pandemic is affecting nearly every aspect of life. It’s only natural that such drastic events would influence the NYC real estate market, too. An example, plummeting interest rates — how low will mortgage rates in NYC go? On a national level, Zillow economists have found that purchases dipped after a bleak economic outlook, and falling rates led to an increase in refinance volume. For NYC, sales prices fell, with the StreetEasy Manhattan Price Index down 4.1% from last year due to plummeting demand. Although, as it is in most things, NYC real estate is unique — it doesn’t always follow national trends. So, are these low rates here to stay? Is now the time to buy or refinance? StreetEasy offers expert insight on the latest city trends, and how New Yorkers should approach buying or refinancing a home during the crisis.

Refinancing and Mortgage Rates in NYC

New York mortgage brokers saw an initial boost in refinancing due to the recent decline in mortgage rates. And that hasn’t changed. Richard Barenblatt, a Mortgage Banker at GuardHill Financial Corp., notes a healthy flow of inquiries.

“I’m still very busy with both purchases and refinancing. It’s almost equal at this point. I would say it’s 60% refinance, 40% purchase. Pre-pandemic, there was more purchase activity in the city, which is slower now. But, a lot of families are moving out of the town. So, the purchase market there has picked up.

A broker and owner of Block Financial Resources, Sean Bloch, reveals that his company has more inquiries for refinancing right now than it has at any time during the firm’s 12-year history.

“Swamped is probably an understatement,” he said of the inquiries. Borrowers are becoming more aware of the super-low interest rate environment. The news of mortgage rates reaching all-time lows is now in the mainstream media quite a bit. It has led most homeowners and potential homeowners to see if they can take advantage of mortgage rates while remaining historically low.”

Melissa Cohn, Executive Vice President of Sales at Family First Funding, also has seen a surge in refinancing applications. But, she notes, rates for refinances with many banks are not as low as they are for new purchases. “Banks are inundated and not offering tiered pricing,” she says. “It’s important to note those low rates are not for the high balance loans or the jumbo loans. They’re for conforming loans.”

How Low Will Mortgage Rates in NYC Go?

It seems like every day there is a headline about record low-interest rates. But are they going to stick around for a while? Or, could they go even lower? 

“Rates have the potential to decrease further as economic struggles exist domestically and internationally due to the pandemic,” said Bloch. “When the economy struggles, lending rates usually come down.”

Cohn thinks rates could go down to as low as 2.5%. “I keep telling people there’s no rush because rates aren’t going anywhere because, unfortunately, the pandemic is not going anywhere.” 

That said, lenders do have capacity issues they are still concerned with. It may lead to mortgage rates stagnating or even going up despite market conditions suggesting they should do the opposite.  

“It’s always impossible to predict interest rates,” said Bloch. “I usually get worried once there is a consensus and lately I’m hearing clients suggest rates will get to 2.5%. I encourage my clients not to be too greedy with mortgage rates already in the high 2’s. No one can predict the future.”

Lenders Are Still Approving Housing Loans, But With New Restrictions

People are looking to take advantage of low-interest rates. But are banks and lenders even approving loans? The simple answer is yes — with a big caveat. Mortgages are getting approved, but many banks still have tightened guidelines and approval wait times are much longer.

“Non-qualified mortgages, jumbo, interest-only, and self-employed mortgages all have become more difficult to obtain,” said Bloch. “The large number of forbearances has also created liquidity issues for some lenders. It has resulted in many lenders not offering (or restricting) their ‘cash-out’ refinance offerings. Some lenders don’t have the funds to give out currently, or are doing so at a premium.”

Barenblatt adds, “Lenders are particularly cautious due to so many people losing their jobs. They need to ensure they are lending to a creditworthy borrower, so they are verifying employment at multiple stages during underwriting. Before, that was done only at the beginning and end of the process.”

Ways Credit Standards Have Tightened During COVID-19:

  • Adding Overlays: “Some banks are adding overlays, meaning additions to conventional Fannie Mae/Freddie Mac and FHA guidelines,” says Bloch. Underwriters can require more information, documentation, or qualifications before approving.
  • Suspending Interest-Only Mortgages: These are loans that require only monthly interest payments and no principal. “Banks consider these to be risky loans, and they are looking to minimize risk right now,” says Cohn.
  • Requiring Higher Credit Scores: “A borrower’s credit score is a leading indicator of their ability to repay their obligations,” says Cohn. “Many lenders now require higher minimum credit scores. The higher the score, the better the payer.”
  • Asking for Proof of Employment: The unprecedented increase in unemployment has got lenders nervous. A borrower who might have easily qualified a few weeks ago now faces increased scrutiny. “Lenders are asking for proof that the borrower is still employed and that their current income is still sufficient to qualify,” says Cohn.
  • Limiting Jumbo Mortgages: This type of financing exceeds the limits set by the Federal Housing Finance Agency, and lenders aren’t willing to take that risk, according to Cohn. That limits potential homeowners who were looking to put most of their assets on the line to buy a house.
  • Offering Lower Loan-to-Value Ratios: This is the percentage of the value or purchase price of a home that a lender will finance. “Until recently, we had banks that would finance as much as 100% of the purchase price of a new home,” says Cohn. “They have since reduced it.” It gives banks more of a cushion against any negative economic impact of the coronavirus.
  • Restricting Cash-Out Limits: Banks may happily refinance a homeowner’s current mortgage amount, but they want to limit cash out – meaning taking equity out of your home. “There’s a fear that borrowers who want to take cash out need the money, which means greater risk,” says Cohn. 
  • Suspending Non-QM Programs: QM is short for a “qualified mortgage” loan. “Non-QM loans fall outside of these standards, like loans that use bank statements to qualify,” said Cohn. “This will hurt self-employed borrowers who need non-conventional underwriting to get their loans approved.”

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Tips for Buying or Refinancing a Home in NYC

So, what should you do if you want to take advantage of today’s low-interest mortgage rates in NYC? Well, the advice from mortgage brokers varies a bit. 

Both Bloch and Cohn agree that if you find a home you love at the right price, now is the time to buy. Getting pre-approved sooner rather than later is vital since banks are backlogged with applications.

“Try to apply early,” said Bloch. “Most lenders are prioritizing files based upon the order in which applications are received. If you don’t apply and have questions for your bank or broker, try to condense them into as few emails as possible. 

Bloch added, “For those clients looking to engage in a 20 plus email analysis for their refinance, they may find 20 emails takes a long time for their loan officer to respond to in this market. Organize your questions into one conversation or email and be decisive. With the volume of people refinancing, there aren’t enough loan officers to help provide the initial hand holding most companies normally like to provide.”

Also, it’s essential to shop around because lenders have varying restrictions and rates. “Rates are very different from bank to bank,” said Cohn. “Going to your own lenders may not necessarily be the right thing because the bank that was the best bank when you bought your home four years ago. They may have a very different enough philosophy in terms of what they’re offering and what they want to do today.”

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Virtual Mortgage Closings in NYC on the Rise

With social distancing guidelines firmly in place, real estate transactions have changed. While closing on a house usually involves a lot of in-person meetings, many people are understandably hesitant. Enter virtual and socially-distant closings.

“Most bank attorneys and title companies are very open to remote closings on purchase transactions,” said Bloch. “People are not anxious to get into a room of 10 people quite yet. When purchases occur, sometimes the parties take turns sitting in the conference rooms and signing one a time to maintain social distancing. Most of our refinances are taking place outside in people’s backyards, courtyards, or rooftops. This allows for social distancing without the increased coordination of a remote notary.”

“Many components of closings can be handled remotely,” explains broker Tania Isacoff Friedland of Warburg Realty. “The governor’s executive order is allowing ‘virtual notaries’ helps a lot. Most documents can be signed remotely using applications such as DocuSign and SignNow.”

For example, under normal circumstances, a co-op seller pays off the lender when the lender physically delivers the collateral (usually the proprietary lease and stock certificate) to the closing. “We are working on coming up with solutions for this,” says Friedland. “Some closings will also be affected by a seller’s inability to deliver vacant possession if a building has stopped permitting moving out and moving in.”

How Do Virtual Closings Work?

The key to a successful virtual closing is having a settlement agent (bank attorney/title company) who is on board with doing everything remotely, says Bloch. “I’m finding that boutique settlement agents are easier to work with on virtual closings. Some of the bigger agents in the city are less amenable to it and seem hesitant to change their policies and procedures,” he says.

In a remote closing, much like most working from home, meetings are done via Zoom and FaceTime. “The parties show their photo IDs, and the settlement agent watches everyone sign,” says Bloch. Legal documents are shipped: “The parties are given a return shipping label and overnight the documents back to the settlement agent. The settlement agent applies its notary stamp.”

In some cases, the settlement agent foregoes the overnight and notarizes copies of the signed documents. But Bloch advises against using this method: “There is a risk of these documents being rejected by the county clerk in the future, as they might not like the fact that these are copies and not originals.” 

In-person interactions are often just limited to one attorney and a title closer at a closing. “They’ll either close in a conference room where they’re far part of the bid table,” said Cohn. “They’re closing separate rooms or closing parking lots. We’ve seen it all.”

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