How COVID-19 Changed Mortgage Approval Processes Forever 

The COVID-19 pandemic permanently altered how lenders approve mortgages, increasing digitalization and tightening underwriting requirements. Borrowers now face stricter income verification, remote appraisals, and a shift toward automated approvals, making mortgage applications more efficient yet also more complex. This article breaks down these key changes, how they impact borrowers, and what you can do to navigate today’s evolving mortgage approval landscape. 

Digital Mortgage Approval: Faster and More Efficient 

AI-Powered Underwriting Takes Over 

Before the pandemic, most mortgage approval processes involved significant human intervention. Loan officers manually reviewed income documents, bank statements, and tax returns, often leading to long wait times. Now, automated underwriting systems (AUS) have transformed the process, allowing loans to be assessed within minutes instead of weeks. 

These AI-driven systems instantly evaluate a borrower’s creditworthiness, identifying risk factors with greater precision. While this has streamlined the approval process, it has also left less room for negotiation. If an AI system flags an issue—such as fluctuating income or high debt—borrowers may find it harder to get exceptions from lenders. 

E-Signatures and Online Document Uploads are Now the Norm 

Gone are the days of printing stacks of paperwork and visiting the lender’s office multiple times. COVID-19 forced the adoption of fully digital mortgage applications, which have now become standard. 

With secure online portals, borrowers can: 

• Upload income documents and tax returns remotely. 

• Sign disclosures and agreements digitally. 

• Track their application progress in real-time. 

This shift has eliminated unnecessary delays, allowing borrowers to complete the process entirely from home. However, it also means that missing or incorrect documents are flagged immediately, so applicants need to be meticulous with their submissions. 

Stricter Income and Employment Verification 

Real-Time Employment Checks are Here to Stay 

One of the biggest changes in mortgage approval is how lenders verify employment. Before COVID-19, a lender would typically check a borrower’s job status once—at the time of application. Now, many lenders conduct multiple employment checks, including: 

• At application submission to confirm income stability. 

• Right before closing to ensure the borrower has not lost their job or experienced pay cuts. 

This change emerged due to the unpredictability of job losses during the pandemic, particularly in industries such as travel, retail, and hospitality. Borrowers must now maintain stable employment throughout the entire mortgage process, as even a last-minute job change could result in loan denial. 

Challenges for Self-Employed Borrowers 

Self-employed individuals were hit hardest by the changes in mortgage approval processes. Pre-pandemic, lenders already scrutinized business owners and freelancers more than traditional W-2 employees, but COVID-19 intensified this. 

Lenders now require: 

• At least two years of consistent self-employment income. 

• Profit and loss statements, often signed by a CPA. 

• Higher cash reserves, sometimes equivalent to 6-12 months of mortgage payments. 

For self-employed borrowers, thorough record-keeping is now non-negotiable. Inconsistent income or large recent deductions can make mortgage approval significantly more difficult. 

How COVID-19 Changed Mortgage Approval Risk Assessments 

Tighter Credit Score and Debt-to-Income (DTI) Requirements 

Mortgage lenders have become far more conservative in approving loans since COVID-19, with increased focus on credit scores and DTI ratios. 

Key Stats: 

• The average DTI ratio for approved borrowers dropped from 41% pre-pandemic to 36% post-pandemic. 

• The minimum credit score required for conventional loan approval rose from 620 to 680+ in many cases. 

• High-DTI borrowers now face additional scrutiny and often need compensating factors, such as a higher down payment or significant cash reserves. 

For borrowers, this means paying down debt before applying for a mortgage is more critical than ever. Keeping your DTI below 36% and maintaining a strong credit score above 700 will significantly improve your approval chances. 

Higher Cash Reserve Requirements 

Another lasting impact of COVID-19 is the expectation that borrowers have more savings before getting a mortgage. 

Many lenders now require: 

• 3-6 months of mortgage payments in reserves. 

• Additional reserves for borrowers with non-traditional income sources. 

• Verification of accessible, liquid funds, rather than relying on retirement accounts. 

For buyers who have strong credit but limited savings, this can be a major roadblock. Preparing in advance by building up an emergency fund can help secure a more favorable loan. 

Actionable Steps to Improve Mortgage Approval Chances 

Improve Your Credit Score and DTI Ratio 

To increase your likelihood of mortgage approval, focus on strengthening your financial profile: 

1. Pay off existing debts to lower your DTI ratio. 

1. Keep credit card utilization below 30% to improve your score. 

1. Review your credit report for errors before applying for a mortgage. 

Prepare for Income Verification Challenges 

Mortgage lenders are now far more rigorous about verifying income sources. To avoid delays: 

• Keep W-2s, pay stubs, and tax returns readily available. 

• If self-employed, have at least two years of tax records and a CPA-verified profit-and-loss statement. 

• Ensure your employer is aware that lenders may call for last-minute employment verification. 

Being proactive can prevent unnecessary processing delays and ensure a smoother loan approval experience. 

FAQs About Post-COVID Mortgage Approval 

Why do lenders check employment status multiple times? 

Lenders now verify employment twice—at application and before closing—to prevent lending to borrowers who lose jobs mid-process. 

Can I get a mortgage if I used forbearance during COVID-19? 

Yes, but lenders require proof that payments have resumed for at least 12 months, along with additional financial stability documentation. 

Is mortgage approval harder post-COVID? 

Yes, due to stricter income verification, higher credit score requirements, and tighter underwriting processes. However, digital mortgage tools have made applications faster. 

Key Takeaways from Post-COVID Mortgage Approval Changes 

The mortgage industry has permanently changed, bringing: 

✅ Faster, AI-driven digital approvals with reduced paperwork.
✅ Stricter employment verification before closing.
✅ Higher credit and DTI requirements, making qualification more competitive.
✅ More scrutiny for self-employed borrowers, requiring extensive financial documentation.
✅ Increased cash reserve expectations, ensuring financial stability. 

Stay Informed and Plan Ahead 

Understanding how COVID-19 changed mortgage approval processes is critical for homebuyers. By maintaining strong credit, stable employment, and thorough financial documentation, you can navigate the new lending landscape with confidence. 

Get Expert Mortgage Guidance Today 

The mortgage approval process is tougher than ever, but with proper preparation, you can still secure the financing you need. Connect with a mortgage professional today for personalized advice and a smoother homebuying experience!