There is good news for mortgage applicants, qualifying requirements are beginning to ease up after the strict tightening we saw at the height of the pandemic. According to reports mortgages were around 2.2% easier to attain approval on in April as compared to March. Some loan products saw increased availability of 12.6% as well.
What Caused Requirements to Become More Strict Last Year?
Last year was an uncertain time for the lending market and it made lending out money much more risky for lenders. The unemployment rate hit an all-time high and a large amount of Americans lost jobs and wages, some people that were able to retain jobs took pay cuts. Entire sections of the economy were shut down for months with no solid reopen plan.
To protect from larger amounts of risk in lending money, many mortgage lenders raised loan requirements and some stopped offering some loan products all together including FHA loans.
Most lenders began requiring higher credit scores, and larger down payments than they previously required. Some lenders also added a second employment verification just before the closing date as an extra layer of lending risk protection.
How Mortgage Requirements are Beginning to Ease Again
Conforming Loan Requirements
Standard requirements on credit scores, down payments, and other qualifiers eased most on conforming loans. Conforming loans are loans that meet standards set by Freddie Mac and Fannie Mae. These agencies look for credit scores of 620 or higher and a down payment starting in the 3-5% range or higher.
Each lender looking to have a loan backed by these agencies needs to at least adhere to the standards set by them, but they can also implement stricter requirements if they see fit. These stricter requirements are referred to as overlays. In many cases, it is the overlays that are easing up on loans.
Other Loan Types
Jumbo loans, or loans that are allowing borrowers to borrow more than the conventional loan limit saw an availability increase of 7%. Government loan programs are seeing a similar increase in availability including FHA, USDA, and VA loan products.
Qualifying for a Home in the Current Mortgage Market
Though there has been an uptick in loan availability and a slight ease in requirements, it is still more difficult to obtain mortgage approval than it was before the pandemic. If you are concerned about being approved for a loan the best things you can do to prepare for your application are to work on your credit score and debt-to-income ratio.
When you do go to apply for a loan it is always wise to shop around for your best options. The best way to shop for the best mortgage available to you is to work with an experienced local mortgage broker. A mortgage broker will take your financial data and do the shopping for you to find the best loan products available to you. No need to fill out several loan applications on your own or set up several different meetings with lenders.
For more information on second loans and all of your mortgage options in Mission Viejo and California please contact me anytime.
For help finding the right type of mortgage in California please contact me at any time.
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