Mortgage Requirements Continue to Loosen for Home Buyers

Easing credit standards

While home buyers have trudged through the trifecta of high mortgage rates, competition and prices, conditions are improving.

Housing inventory keeps rebounding as for-sale listings surge — helping to slow price growth — and interest rates started their long-awaited descent this summer with an anticipated Fed cut all but guaranteed for September.

Even better, lenders lowered the barrier to entry to secure a home loan. According to the Mortgage Bankers Association (MBA), getting a mortgage got easier in August for the eighth consecutive month.

How lenders are feeling

In addition to a borrower’s financial profile, mortgage lenders adjust their underwriting parameters often in alliance with economic ebbs and flows.

Their underwriting leniency (or lack thereof) coincides with the amount of risk they’re willing to take on in that moment. They tend to lower their standards when the economy runs hot and raise them during recessions or times with elevated uncertainty.

The MBA measures this through its Mortgage Credit Availability Index (MCAI). The MCAI has a baseline score of 100. Higher scores mean lenders are more likely to extend credit while lower ones indicate tighter standards.

In August, the MCAI climbed to 99 from 98.1 in July and 96.6 the year before. That reached the index’s highest point since April 2023 and marked the eighth straight month of looser mortgage lending requirements.

“This was driven by increased cash-out refinance and non-QM programs,” said Joel Kan, deputy chief economist at the MBA. “Mortgage rates have been on the decline since May 2024, prompting a pickup in refinance activity, which remains limited to a smaller segment of homeowners with higher rates. As a result, the increase in credit availability was the result of lenders broadening their refinance offerings to meet the greater demand.”

The table below shows the overall MCAI scores from August 2023 to August 2024:

The MCAI’s components

The overall index is broken down into four components: Conforming, conventional, government and jumbo.

Conforming loans — those that meet the Fannie Mae and Freddie Mac standards, with credit scores starting at 620 and down payments of 3-5% or higher — led August’s growth with a 2.6% monthly increase.

Behind that, conventional mortgages and jumbo loans — reserved for high-priced properties — rose 1.8% and 1.5%, respectively. Meanwhile, the government MCAI — inclusive of FHA, VA and USDA mortgages — stayed flat from July.

The bottom line for home buyers

The trend of loosening credit access should help more prospective home buyers get approved for mortgages.

With conditions improving, it’ll likely behoove you to get ahead of competition by being prepared before applying for a home loan. And if you’re still not meeting a lender’s approval requirements, you can follow the steps to raise your credit score and see if you qualify for down payment assistance programs.

If you’re ready to begin your path to homeownership, reach out to a local loan officer today.