There’s some good news for home buyers: securing a mortgage loan is finally becoming easier.
Mortgage lenders appear to be loosening the restraints a little after tightening lending rules during the pandemic.
Here’s how the change will affect homebuyers (and refinancers).
Covid Impact
Lenders took a chance last year by lending money. Unemployment reached new highs, many people lost their jobs and wages, and entire sectors of the economy were forced to shut down for months.
Many mortgage lenders increased loan restrictions to shield themselves from these new hazards. Some lenders have even stopped selling particular loan types (such as FHA loans, HELOCs, and non–QM loans).
Over the last year, most lenders demanded higher credit scores and greater down payments.
As an extra layer of security, several mortgage lenders added a second employment verification — this time right before the closing date.
Loosen Mortgage Rules
Those strict requirements are finally starting to relax, according to MBA’s Mortgage Credit Availability Index.
In April, the MCAI increased by 2.2 percent, indicating that standards are becoming less stringent.
Loan Conditions
Conforming loans had the largest loosening of credit score, down payment, and other conditions, with a 12.6 percent increase month over month.
Conforming loans are those that meet Freddie Mac and Fannie Mae’s requirements. Credit ratings as low as 620 are acceptable, as are down payments of 3–5% or more.
Lenders, on the other hand, are allowed to impose additional restrictions (known as ‘overlays’) on top of Fannie and Freddie’s. These overlays are the reason why mortgage standards vary so much from one lender to the next — and why some lenders are reopening to consumers with bad credit faster than others.
Others
Jumbo loans, which are intended for higher-priced property acquisitions, witnessed a roughly 7% increase in availability.
Credit availability is still not back to where it was in 2020.
Overall, the availability of mortgage credit is improving. Many Americans are finding it easier to buy or refinance their homes as a result of this.
Mortgage criteria have yet to return to pre-pandemic levels — or even close to them.
Credit availability should improve as the economy recovers from the pandemic — and as the number of mortgage loans in deferment decreases.
As the year progresses, standards should become more relaxed.
In today’s economy, how do you qualify?
Despite the improvement, getting a mortgage is still more difficult than it was a few years ago.
If you’re concerned that you won’t be approved for a loan, work on improving your credit before applying for a mortgage.
You should also put up a substantial down payment and shop around with three to five different lenders. Because each mortgage lender has its own set of qualifications, browsing around might help you locate the greatest deal for your specific position and budget.