Why is Qualifying for a Mortgage Getting So Difficult?
Qualifying for a mortgage is getting harder and harder. Today we found this article below and we think they nailed a lot of the important points. Take a look at let us know what you think in the comments section!
As if rising home prices and stiff competition weren’t enough, homebuyers now face another challenge: Stricter mortgage standards.
According to the Mortgage Bankers Association, mortgage loans got harder to come by last month (dropping by about 8.5% from May, in fact). Overall mortgage credit availability is now at its lowest point since September 2020, which “indicates standards are tightening.”
“When mortgage availability drops, it’s harder to get a mortgage,” says Joey Abdullah, managing director of Bell co Home Loans. “Typically, you have to have a higher credit score, sometimes larger down payments or, if you’re refinancing, a higher equity position in the house.”
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Conventional loans are hardest to come by
MBA’s data suggests that standards tightened most on conventional and conforming loans — those eligible for purchase by Fannie Mae and Freddie Mac. These became 23.5% less available in June.
According to Abdullah, refinancers, investors, self-employed buyers and second home buyers have the most to worry about when it comes to qualifying.
“We’re seeing this especially on the refinance side of the house,” he says. “Availability of credit has also diminished on non-owner-occupied homes.”
The tighter standards stem from pandemic-spurred policy changes implemented by both Fannie and Freddie, which made it harder for those with high loan balances to refinance their mortgages. The two government-sponsored agencies also reduced the number of investment and second-home loans they would purchase, so these loan options decreased as well.
Fortunately, the difficulties shouldn’t last for long — at least for refinancers. For one, there’s a bit of lag time between the data and when MBA reports. For example, Brian Koss, EVP of Mortgage Network, says he’s already seen things improve in recent weeks.
“It’s actually loosened up a bit because you’re seeing the economy do better,” Koss says.
Additionally, both Fannie Mae and Freddie Mac have launched new refinance programs this month, which should make refinancing easier for low-income and high-loan-value borrowers.
The Federal Housing Finance Administration also recently removed the adverse market fee it imposed on refinance loans last year. This should reduce the interest rates that conventional borrowers see when refinancing.
“Your interest rates are more attractive than they were this time last week,” Koss says. “It equals about an eighth of a percent.”