Mortgage eligibility to expand in 2022 amid hot home-buying market

Will you be house hunting in 2022?

Freddie Mac estimates there are approximately 41 million “mortgage-ready” potential home buyers across the country.

With the ongoing inventory squeeze, the intense home buying competition of 2021 likely won’t be left behind. While that means possibly having to get creative in your search, getting financing should be easier than last year.

Lenders expanded access to mortgage eligibility in most of 2021 and are expected to do the same in 2022.

So if you didn’t meet — or didn’t think you met — loan requirements in the past, you should explore your options now.

In this article (Skip to...)

• What is “mortgage readiness?
• Easing loan standards
• Competition drivers
• How you can compete

What does it mean to be “mortgage-ready”?

According to a Freddie Mac insight report, mortgage readiness measures future home buying potential. In order to be considered “mortgage-ready” a borrower must meet six requirements:

• Don’t already have a mortgage
• Between 18 and 45 years old
• Credit score above 660
• Back-end debt-to-income ratio doesn’t exceed 25%
• No foreclosures or bankruptcies in the past 84 months
• No severe delinquencies in the past 12 months.

With those parameters, Freddie Mac estimates approximately 41 million Americans to be mortgage-ready as of January 2021.

That total likely grew in the past year as more millennials and Gen Zers met those criteria but were unable to buy a home due to affordability or supply hurdles. Alongside the wide swath of potential buyers, lenders are increasing access to credit.

Mortgage standards are easing up in 2022

Prospective home buyers are also benefiting from looser mortgage requirements in 2022. After tightening their standards during the height of the Covid pandemic, many lenders have eased back up.

Mortgage credit availability expanded in nine out of 12 months throughout 2021, including most recently in December, according to the Mortgage Bankers Association.

The mortgage credit availability index rose to 125.9 — the highest level since May — up from 124.9 in November and 122.1 in December 2020.

The latest growth was “likely due to a combination of the rising rate environment and affordability challenges. Lenders expanded offerings to qualified borrowers who were the most impacted by these market conditions,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

The MBA benchmarked the index at a score of 100 and it peaked at 868.7 in the second quarter of 2006 in the run up to the housing market crash.

What’s driving competition?

The supply and demand imbalance continues. Redfin’s December market report showed a record-low seasonally adjusted 1.33 million homes for sale. That total fell 3.2% from November and 18.9% annually.

“In many markets, shopping for a home feels like going to the grocery store only to find the shelves bare. I expect to see more buyers and sellers in the market, but demand will increase more than supply — pushing prices higher at the start of this year,” said Redfin Chief Economist Daryl Fairweather.

Additionally, a growing number of consumers are reaching the typical ages and life milestones that align with a house purchase.

“Millennials are the largest generation in U.S. history, and the bulk of them are aging into their prime home-buying years. The challenge for new millennial households is the lack of supply, particularly at the starter home price range,” said Mark Fleming, chief economist at First American.

How can you compete?

According to Redfin, over half of all home offers faced bidding wars in every month dating back to May 2020. Competition is fierce out there.

Placing a winning offer in the current housing marketplace could require getting creative or even building your own.

About nine out of 10 millennials would buy a house sight unseen, based on a survey by Clever Real Estate. It also revealed that 51% of consumers feel stress or anxiety about the home buying process.

Reaching out to a lender to check your mortgage eligibility and find the right home for you could help ease the process. Check out the latest interest rates to get started.