If you couldn’t get approved for a mortgage in 2021, you might have better luck this year. Thanks to rising interest rates, buyers have a better chance of being approved for a home loan. Mortgage lenders are beginning to ease loan requirements for potential buyers, as noted in the Mortgage credit availability index, a key measure of lenders’ willingness to provide home loans. This tends to happen when interest rates rise and fewer people apply for mortgages due to the rising cost of home loans. This slowdown in demand creates an opportunity for homebuyers who may not have been approved for a mortgage before.
Thirty-year mortgage largest annual increase in 34 years.for the first time in seven years in April. This increase, together with also pushed many buyers out of the market – but now that lenders are looking to boost business it means they can approve larger loans, providing an opening for buyers who couldn’t compete with the avalanche of offers in cash that became commonplace during the peak of the . The move to ease lending standards is particularly helpful for cash-strapped buyers or those who couldn’t afford large down payments in a tight market that has seen home values rise 19% in 2021, the
But as lenders start offering larger loans, it’s important to keep in mind that you still need to find a home and a mortgage that you can afford.
“Just because you qualify for a loan of a certain amount doesn’t mean you have to borrow that much,” said Greg McBride, chief financial analyst at Bankrate.com. (Bankrate, like CNET, is owned by Red Ventures.) “At the end of the day, you’re the one who’s stuck with the payments, and it has to be a payment you can afford, not just now or in your life. better year, but lastingly month after month, good and bad years.”
Lenders relaxing credit standards can also help buyers with lower credit scores get approved for a home loan. In the first quarter of this year, Fannie Mae and Freddie Mac approved almost 17% of loans for people with credit scores ranging from 620 to 699, compared to 9.4% in the first quarter of 2021, according to a analysis of federal mortgage data by Inside Mortgage Finance.
“Credit availability has gradually increased since mid-2021, but remains about 30% tighter than it was at the start of 2020,” Joel Kahn, vice president of the Mortgage Bankers Association, said in his statement. Mortgage Availability Report for March.
However, the remaining tight credit isn’t necessarily a bad thing, McBride said, and it’s still tighter than it was before the pandemic.
“Given soaring house prices and the risks to the economy ahead, that’s a good thing,” he said. “We don’t want to go back down the road of 2004-2006 when credit standards got increasingly lax even as house prices rose to nosebleed levels. It didn’t end well. .”
So even ifisn’t necessarily a good thing when it comes to taking out a mortgage – you’ll end up paying tens of thousands of dollars more over the life of the loan – higher rates have opened the door for buyers who don’t have couldn’t get into the housing market otherwise.