Mortgage Requirements Loosen in December

Changing 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 should hopefully fall with the Federal Reserve making cuts.

Even better, lending underwriting standards eased in December, according to the Mortgage Bankers Association (MBA).

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 December, the MCAI rose to 96.6 from 95.9 in November and 92.1 the year before.

“Credit availability increased slightly in December, driven by more offerings for ARMs and cash out refinances that are primarily for borrowers with better credit,” said Joel Kan, deputy chief economist at the MBA. “These factors led to a slight rebound in conventional credit compared to the previous month. Additionally, the jumbo index rose to its highest level since August 2024.”

The table below shows the overall MCAI scores from December 2023 to December 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 — fell 0.7% in December from November.

Conventional mortgages increased 1.3% and jumbo loans — reserved for high-priced properties — increased 2.3%. Meanwhile, the government MCAI — inclusive of FHA, VA and USDA mortgages — held steady month-over-month.

The bottom line for home buyers

Regardless of whether credit access is tightening or loosening, your approval will be based on your individual financial profile.

It’s always a good idea 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.