Four times annually, the Federal Reserve surveys 84 banks around the country about general lending standards and banking conditions.
One of the survey questions asks about current mortgage lending standards and whether it’s getting harder, or easier, to get approved for a home loan.
Modified from the report, we see that nearly 80 percent of banks are making it harder for "prime" borrowers to get a mortgage.
This is up from 18 percent a year ago and underscores mortgage lender risk aversion among even the "most qualified" among us.
A six-figure income or impeccable credit is no longer good enough to get you carte blanche with the bank — you’ve got to have the complete package and this chart is your proof of that.
Now, some of the areas in which mortgage guidelines are tightening are well-known:
- More thorough income documentation
- Higher credit score requirements
- Larger downpayment requirements
But most of the areas are less well-known and constantly changing. They includes the dark corners of mortgage approvals, addressing esoteric items such as:
- Investment property cash flow
- Appraised values and comparable sales
- 30-day delinquencies and credit character
And it’s only expected to get harder.
So, if you already know you’re buying a home next Spring, talk to a loan officer now and put a purchasing plan in place. This is especially true if you’re converting your primary residence into an investment unit — more than a few would-be buyers have been burned already by new rules that specifically exclude some types of rental income.
Where 80 percent of banks go, the other 20 percent is likely to follow. The best way to prepare for these changes is to ask good questions in advance of your actual needs. That way, you’re planning proactively instead of scrambling reactively for additional downpayment at the 11th hour of your purchase.