Numerous mortgage lenders have reduced their loan approval standards between October and December last year, which is why more home loans were approved during that period than during any other period in recent history. Feeling confident about the rising U.S. housing market has resulted in them making allowances for borrowers who have little to no home equity or who may have lower than average credit scores.
More Mortgage Approvals Issued by Banks
Each quarter, a survey is conducted by the Federal Reserve in which it asks its member banks about the current lending environment, and the survey covers multiple types of residential and commercial loans. The main purpose of this survey is to see what the demand is for bank loans and how willing the banks in question are to provide them to applicants.
Inquiries are also made about the banks’ mortgage lending guidelines, especially those pertaining to prime residential mortgages. These mortgages are reserved for borrowers who have credit scores of more than 740, who have lower than average debt-to-income ratios and whose mortgage features the standard amortization schedule that is normally seen with fixed-rate or adjustable-rate mortgages.
The most recent Senior Loan Officer Survey showed that prime mortgage borrowers are finding it easier to get mortgage approved, with 18% of banks reporting that loan standards had eased in the last quarter. Mortgage processing software provider Ellie Mae, whose software helps process more than 3.7 million mortgage transactions each year, more than 70% purchase mortgage applications made it closing during the last quarter.
VA and FHA Loans more Challenging
Although more prime mortgage loans were approved during last quarter, government-backed loans such as those issued by the VA, FHA and USDA weren’t so lucky. Only 7% of banks that dealt with government residential mortgages loosened their guidelines during the same quarter.
FHA loans are insured by the Federal Housing Administration. They are a popular option for first-time buyers because small down payments of just 3.5% are required and the credit score needed for approval to be granted are lower than those of other loan programs. In addition, FHA loans are available to all mortgage applicants.
VA and USDA loans on the other hand require borrowers to meet predetermined qualifications. VA loans are available to veterans and members of the U.S. military and surviving spouses; they also provide 100% financing and no mortgage insurance is required when using them. USDA loans are normally available in less densely populated or rural parts of the country and many suburbs as well, and they also offer a range of no deposit options.
Maximum loan-to-values have been raised as a result of minimum credit scores being dropped and documentation requirements for self-employed persons being reduced as well. If you were unfortunate enough to have been turned down for a mortgage within the past two years, it may be worth your while to re-apply. You may find that the reasons previously given for denial of your application will no longer be important.