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Recent data suggests that mortgage underwriting criteria in Washington State and nationwide have eased in recent years. This was true up until very recently. But the coronavirus pandemic may be putting a damper on mortgage eligibility.
Household debt is higher today than it was over a decade ago. Debt-to-income ratios are higher among buyers, as are loan-to-value ratios. The conclusion is that it may be easier to qualify for a mortgage loan, but there may be a shift happening as a result of the health crisis.
According to CoreLogic, mortgage criteria have “eased for both conventional and Federal Housing Administration (FHA) home-purchase loans.”
FHA mortgage underwriting standards were typically “more relaxed than” conventional loan programs, in terms of their credit requirements. Over the past few years, Freddie Mac and Fannie Mae have expanded their “credit box” to make conventional loans available to more borrowers. Specifically, these two organizations have increased their maximum debt-to-income (DTI) and loan-to-value (LTV) ratios.
The average DTI ratio for home buyers using a conventional mortgage loan has risen steadily since mid-2013.
According to the Federal Reserve, total household debt increased by $15.24 trillion to $17.29 trillion in Q3 2023. This increase was predominantly driven by a big increase in mortgage debt balances.
Until recently, home buyers across Washington State and nationwide were able to qualify for mortgage loans with higher debt levels today than in the past.
Specifically, home buyers with debt-to-income ratios in the 45% – 50% range were having an easier time qualifying for loans. This is the result of policy changes made by Freddie Mac and Fannie Mae, among other factors.
But there is so much uncertainty in the real estate market and the economy as a whole these days that there may be a shift happening in terms of lending criteria and borrowing power.
Definition: The debt-to-income ratio is a comparison between the amount of money a person earns, and the amount he or she spends on recurring monthly debts. It’s usually expressed as a percentage. The DTI is one of the most important factors for home buyers seeking a mortgage loan.
Another noteworthy trend has to do with the loan-to-value ratio, or LTV. According to this report, the average LTV for conventional (non-government-backed) home loans have risen steadily over the past decade. This indicates that, on average, home buyers were making smaller down payments than they did in the past.
This was partly the result of policy changes made by Freddie Mac and Fannie Mae. Both of these government-sponsored enterprises increased their maximum allowable LTV to 97%. In turn, this means qualified home buyers in Washington and nationwide could obtain a conventional loan with as little as 3% down.
But borrowers with a low credit score and high LTV are having a more difficult time securing a home loan because of a reduction in loan availability for this demographic.
During these times of economic uncertainty and the effect it’s having on the housing and mortgage markets, borrowers are encouraged to work with a reputable and seasoned lender that can help provide them with a mortgage with flexible qualification criteria. This is especially true for borrowers who may not have the highest credit score or lowest LTV.
Are you looking to buy a home in Washington and need a home loan to finance it? We can help. Sammamish Mortgage has been serving borrowers across Washington, Oregon, Idaho, and Colorado since 1992. We have a number of mortgage programs to choose from. Please contact us if you have financing-related questions, or if you’d like to receive a mortgage quote.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.