The mortgage requirements are easing
There’s good news for home buyers: Getting a mortgage loan is finally getting easier.
Now that lending standards have been tightened during the pandemic, mortgage lenders appear to be loosening the reins a bit.
Indeed after the Mortgage Bankers AssociationMortgages were about 2.2% easier to come by in April than in March. And on some types of loans? The availability of mortgages increased by up to 12.6%.
Here’s what the change means Homebuyers (and refinancers).
Why did mortgage requirements get stricter during the COVID?
Last year was a risky time for lenders to borrow money. Unemployment hit record levels, many people lost jobs and wages, and entire parts of the economy were shut down for months.
To protect themselves from these additional risks, many mortgage lenders have increased the loan requirements. Some have even stopped offering certain loan programs altogether (namely, FHA loans, HELOCs, and non-QM loans).
For the most part, last year lenders asked for higher credit scores and higher down payments.
For example, Chase once increased his credit score requirement to a whopping 700 and asked for a 20% down payment on all purchase credits. (Usually it is possible to get one conventional mortgage with a credit score of 620 and only 3% less.)
Other mortgage lenders added a second employment review – one just before the closing date – as an extra layer of protection.
Mortgage requirements are now easing again
According to MBA’s Mortgage Credit Availability Index, these high standards are finally starting to relax.
The MCAI rose 2.2% overall in April, indicating that standards are becoming less stringent.
Meet loan requirements
The standards for credit score, down payment, and other criteria have eased the most for compliant loans, increasing 12.6% over the month.
Compliant loans meet the standards set by Freddie Mac and Fannie Mae. The agencies allow credit scores from 620 and down payments of 3-5% or higher.
However, lenders are allowed to set their own stricter requirements in addition to those of Fannie and Freddie (known as “overlays”). These overlays are the reason mortgage requirements vary so much from lender to lender – and the reason some lenders are opening up to lower loan borrowers faster than others.
If you think you should qualify but get turned down by one lender, you should apply to a few others to see if the various guidelines can work in your favor.
Requirements for other types of loans
Jumbo loans, reserved for higher-priced home purchases, also saw a large increase in availability of nearly 7%.
Government bonds, which include FHA, USDA, and VA mortgages, don’t see the same trend, according to MBA.
The MCAI for these programs rose just 0.1% from March to April, indicating that lending standards have remained largely unchanged.
Credit availability has not yet reached its 2020 highs
Overall, the availability of mortgage credit is improving. This makes life easier for many Americans buy a house or refinancing.
Still, mortgage requirements have not recovered to pre-pandemic levels – or even close to them.
Before that, the mortgage credit index was well into the 170s and 180s. Today it’s only 128.1.
With the post-pandemic economy picking up steam and less indulgence in mortgage lending, credit availability should continue to improve.
If you don’t qualify for a home loan today, don’t lose hope. The standards should continue to decline over the course of the year.
If you’re unsure about whether you would qualify now or in the near future, see:
How to qualify in today’s market
Despite the upward trend, it is still harder to get a mortgage than it was a few years ago.
If you are concerned that you will not qualify for a loan, make sure you work on your loan before applying for a mortgage.
You should also save a solid down payment and shop with at least three to five different lenders. Each mortgage lender has different qualification standards so when shopping you can find the best option for your unique situation and budget.
According to Freddie Mac, comparing mortgage offers can also save you serious money (around $ 3,000 if you get at least five offers!).