Mortgage Requirements Got Tighter in November

Shifting 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.

Though underwriting standards tightened up a bit in November, 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 November, the MCAI dipped to 95.9 from 99.2 October — the index’s loosest measure of mortgage lending requirements since April 2023 — and 96.5 the year before.

“Part of the decline was attributable to investors pulling back on high LTV and low credit score programs for both fixed and ARM loans, as well as further exits from the broker channel in an originations market that is still challenging for many lenders ,” said Joel Kan, deputy chief economist at the MBA. “The most notable impact was on the government index, which decreased to its lowest since December 2012.”

The table below shows the overall MCAI scores from November 2023 to November 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 6.6% in November from October.

Conventional mortgages decreased 2.7% and jumbo loans — reserved for high-priced properties — inched down 0.9%. Meanwhile, the government MCAI — inclusive of FHA, VA and USDA mortgages — declined 3.9% 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.