Getting a mortgage is getting (slightly) easier in 2021
- A recent report has shown that it is getting easier and easier to get a mortgage.
- Mortgage lenders have relaxed their standards in recent months.
- But overall, lending standards are stricter today than before the pandemic.
A recent report from the Mortgage Bankers Association showed that it is getting easier and easier to get a mortgage in 2021. Despite this, mortgage lending standards are even stricter today than they were. before the onset of the pandemic. But the lenders are is starting to relax a bit, in terms of the criteria and requirements of the borrower.
If this trend continues, it could be even easier to qualify for a mortgage later in 2021.
It’s easier to get a mortgage these days
On May 11, the Mortgage Bankers Association (MBA) released a report that showed it was now easier to get a mortgage. Or slightly easier, anyway. According to this report, the Mortgage Credit Availability Index (MCAI) rose 2.2% in April to land at 128.1. A drop in this particular index means that mortgage lending standards are tightening. An increase shows the opposite, a general relaxation of lender standards.
In other words, when the MCAI increases, it becomes easier to qualify for a mortgage. And that’s exactly what has happened over the past two months.
Conventional MCAI increased 4.8% in April 2021. Government MCAI remained basically the same month over month. This shows that mortgage lenders are relaxing their standards for conventional mortgages more than government-backed programs like VA and FHA. Overall, however, public loans tend to be easier to obtain.
According to Joel Kan, associate vice president of economic and industrial forecasting at MBA:
âCredit availability increased in April, fueled by a 5% increase in conventional mortgage credit, as well as an expansion of agency programs for ARMs and high balance loans. The compliant and jumbo loan indices jumped 7% and 13%, respectively. The increase in the supply of credit comes as the housing market and economy continue to strengthen. “
Standards are even stricter than before the pandemic
Well, getting a mortgage is getting easier and easier, lending standards are even stricter today than they were before the pandemic started. Much of this is due to an increase in the number of home loans that are forborne.
The pandemic has led to an increase in abstention programs nationwide. “Forbearance” is when a mortgage lender or manager allows a homeowner to suspend or reduce their monthly payments for a limited time. These programs bring more risk into the picture, from the lender’s point of view. As a result, mortgage lending standards are currently stricter than they were before the pandemic (despite the easing mentioned above).
“Despite the increase of this month [in credit availability], the supply of mortgage credit has not returned to pre-pandemic levels, given the more than 2 million loans still pending tolerance, âsaid Joel Kan.
So while recent reports show it’s getting easier and easier to get a mortgage in 2021, it’s still not as easy as it was in 2019 and early 2020.
Growing demand for ARM loans
In addition to the general relaxation of mortgage lending standards, the recent MBA report also showed increased demand for variable rate mortgages.
Much of this is due to the interest rate trends over the past few months. Today, fixed rate mortgages have higher average interest rates than their variable rate counterparts (ARMs). This factor, combined with the constant rise in house prices, has led to a higher number of borrowers seeking ARM loans.
Throughout most of 2020 and into early 2021, fixed rate mortgages had lower average rates than ARM loans. As a result, very few home buyers were using adjustable mortgages. After all, why would you do it? You could get a lower rate with a fixed loan, while avoiding the uncertainty associated with an adjustable mortgage product. It’s a double victory.
But all that has changed. As of March of this year, the average rate on a 30-year fixed mortgage has exceeded the average for ARM loans. As a result, more and more borrowers are looking for adjustable mortgage products as a way to save money in the short term. This explains the evolution of demand mentioned in the MBA report.
What it takes to qualify for a mortgage in 2021
So it’s getting easier and easier to get a mortgage in 2021. But what exactly does that mean? What does it take to qualify for a home loan these days?
Mortgage standards and requirements can vary widely from lender to lender. On top of that, different mortgage programs have different guidelines and requirements. For example, it is generally easier to qualify for an FHA or VA loan, compared to a conventional non-government mortgage.
But the are some things mortgage lenders are looking for everywhere:
Decent credit. There is no hard and fast rule when it comes to credit scores. But most lenders want to see a score of 600 or more. A lower score might be possible with some of the government sponsored mortgage programs. But again, this number is not set in stone. It’s just a common threshold used for qualifying purposes.
Reasonable debt. Having a manageable level of debt also weighs a lot when it comes to approving a mortgage. The lender will look at your total debt situation to make sure that you are not taking on too much. Additional debt. Again, there is no industry-wide rule that applies to all situations. But many lenders today set the limit for the âdebt-to-income ratioâ between 45% and 50%. So if your combined debts are using more than half of your monthly income, you might have a hard time qualifying for a mortgage.
Repayment capacity. Borrowers must also be able to document their income, and this income must be sufficient to cover monthly mortgage payments. In other words, you must have the financial capacity to repay the loan. This one is sort of a no-brainer.
Good credit. Manageable debt. Repayment capacity. These are three of the most important factors when it comes to qualifying for a mortgage in 2021. Of course, you may also encounter additional requirements, depending on the specifics of your situation.