The housing market may be on fire, but the credit environment is tougher than ever.
Wary of making risky home loans during the pandemic, lenders have tightened standards, especially for first-time home buyers, the Wall Street Journal reported.
Overall, the availability of mortgage credit – an indicator of lenders’ willingness to issue mortgages – is at its lowest level since 2014, according to the Mortgage Bankers Association.
Data from the Federal Reserve Bank of New York shows how difficult it is to get a loan without stellar credit. Last year, 70% of mortgages were granted to borrowers with a credit score of 760 or higher. This was up from 61% in 2019.
Last year, mortgage rates plunged to all-time lows, encouraging potential buyers into the market and stimulating refinancing. (Prices have since increase.) But loan availability fell 35% year over year as lenders tightened standards to avoid lending to financially insecure buyers.
Some lenders have asked borrowers to forgo forbearance. Others ask that pay stubs and other documents required to get a mortgage not be older than 30 days.
“In a week last spring, jobless claims were in the millions,” Tendayi Kapfidze, chief economist at LendingTree, told the Journal. “A borrower who was doing well one week could be a much riskier borrower the following week. “[WSJ] – EB Salomont