Since March 2013, it’s not that hard to get a mortgage

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The battle for homebuyers is getting more intense.

Key Point

• Mortgage lenders have certain criteria for prospective borrowers.
• Given fears of a recession, some lenders may be imposing higher standards on applicants, making it more difficult to finance housing.
• Mortgage availability is at its lowest level since March 2013.

Anyone currently looking for a home tends to face some challenges. For one thing, housing inventory is still fairly limited and housing prices are still skyrocketing. What’s more, mortgage rates are at their highest in the last decade. This creates a “double whammy” scenario where buyers get the worst of it. That means you’ll have to pay more on your mortgage than just your mortgage.

But that assumes they can get a mortgage first. It’s getting harder, too. And more buyers could be forced out of the market.

Mortgage lenders are getting tougher

In the wake of the 2008 housing crisis, mortgage lenders became stricter about imposing borrowing standards. And it makes sense.

Lenders do not want to risk extending mortgages to borrowers who are unlikely to be able to repay. And while the lender does have some protection in such situations, it means that the delinquent borrower can be forced into foreclosure, so the lender isn’t really the lender of the business.

Meanwhile, lenders have tightened their standards in recent months, with mortgage credit ratings hitting their lowest level since March 2013, according to the Mortgage Bankers Association. That means that from the end of 2022 to 2023, borrowers may have fewer options to take out a mortgage.

Why are lenders tightening?

Lending and borrowing money involves risks. Lenders can compensate for that risk by charging higher borrowing rates to mortgage applicants with lesser credit. Ultimately, though, it doesn’t mitigate the risk of not being repaid as much as it sweetens the deal, so to speak. It’s easy to understand why people are hesitant to lend large amounts.

There are also property value issues to consider. Currently, homes may value higher than normal due to general market conditions. But if the economy slumps next year and the housing market follows suit, lenders could be in trouble, with borrowers unable to make payments and home values ​​plummeting.

Things Mortgage Applicants Can Do to Increase Their Chances of Success

Obviously, it’s not easy to get a mortgage right now. However, those serious about making a short-term purchase can take steps to present themselves as a more attractive loan candidate.

There are two concrete steps that mortgage applicants should take now. It’s about improving your credit score and lowering your debt-to-income ratio. A higher credit score indicates less risk to the borrower. Lenders now want to hear it. On the other hand, a low debt-to-income ratio tells lenders that borrowers aren’t overburdened with debt. And that, too, can mean the difference between getting mortgage approval or not.