Mortgage lenders are relaxing their credit standards in hopes of attracting qualified borrowers, according to a mortgage industry trade group.
Lenders increased their demands when the pandemic hit — approving only borrowers with good credit and steady jobs — but they’ve been taking a more relaxed approach since last fall.
So if you’re saving up for an upfront payment and working to improve your credit score, this may be the time to jump on the property ladder – especially with mortgage rates. still at historic lows.
It’s Easier for Borrowers – But Not Difficult
The availability of mortgage credit – a measure of how willing lenders are to provide home loans – has been on an upward trend and grew 1.4% in May, according to the Mortgage Bankers Association reports.
The latest increase has boosted mortgage lending to its highest level since the first days of the pandemic, said Joel Kan, the chief MBA analyst.
The increase, says Kan, was driven by a 3.5% increase in the availability of conventional residential loans. Conventional mortgages – the most common type – are not government-backed, but follow guidelines set by mortgage giants Fannie Mae and Freddie Mac.
These loans tend to have the toughest requirements, making it difficult for low-income borrowers or those with bad credit to qualify.
If you want to apply for a mortgage but are not sure your credit is adequate, getting one is easy. peek at your credit score for free.
Pandemic has made creditors tighten restrictions
Many big banks tightened their credit standards at the start of the COVID crisis, fearing that people would not be able to repay their loans. Chase, Wells Fargo and others wanted borrowers to reach the closing table with 20% down and a credit score of at least 680.
Meanwhile, mortgage sources for borrowers with the best credit scores have increased, as Americans who managed to keep their jobs during the pandemic and save money along the way are now buying bigger or larger homes. refinancing your loans.
In the first three months of 2021, 73 percent of mortgage originations went to borrowers with credit scores above 760, according to the Federal Reserve Bank of New York. That rose by 71% during the last three months of 2020.
Meanwhile, Americans are seeking government-backed mortgages such as FHA and VA real estate loans, saw credit standards for these loans tighten just a little in the last month, says the MBA.
The loosest purse strings in sophisticated borrowers
At the other end of the spectrum, borrowers with the biggest budgets are enjoying more relaxed standards.
The supply of giant loans – that is, high-value mortgages on the most expensive homes – is on the rise.
The availability of credit for jumbo jets increased 5% last month, although loans are still twice as difficult to get as in February 2020, MBA data show.
“A rapidly improving economy and job market has unleashed huge credit as banks have deposits to tap,” says Kan. “However, there is still a lot of restriction as many sectors have not fully returned to pre-pandemic capacity.”
How to Improve Your Chances of Getting a Mortgage
If you’re not one of the big gamblers or don’t have pure credit, there are ways to improve your financial situation so you can qualify for one of today’s low mortgage rates before they disappear.
Price comparison works well for finding the lowest mortgage rate available in your area and for a person with your credit score. Studies by Freddie Mac and others have found that borrowers are looking for loan deals from at least five different creditors usually saves thousands over time.
If you manage to add more points to your credit score, try paying off credit card debt with the help of a lower interest debt consolidation loan.
And, to build an initial payout, consider a lower-stakes way to get returns in the stock market. A popular investment app helps you increase your “change” in a diversified portfolio.