Loan Guidelines Loosening

Make no doubt about it, the guidelines, or more accurately lack thereof, for mortgage qualifications during the housing “boom” was a major contributor to the economic recession we’re still climbing out of today. However, immediately afterwards the overcautious reaction was to create extremely stringent guidelines that ,ept many capable buyers from being able to qualify for loans. Over time we’ve begun to see these restrictions loosen a little bit at a time. Now it seems this trend is continuing, albeit maybe for the wrong reasons.

With the rise in interest rates during the past couple months (rates have been heading downwards most recently) lenders began seeing fewer loan applications come in. This was a combination of buyers becoming hesitant to make a purchase with higher rates, although they’ve still maintained excellent affordability from a historical standpoint, and refinancing tapering off considerably since those who could have refinanced mostly already did with the previous lower rates. One way for lenders to increase the number of loans they’re originating then is to open up the pool of buyers more by relaxing guidelines. Normally this motive would be a cautionary tale, but the overly strict guidelines in place could use some relaxing on a case by case basis.

A specific example of these loosened guidelines is that several local lenders are now able to offer FHA financing to people with credit scores as low as 620 rather than the 650 previously used as a benchmark. Not all buyers with a 620 will still qualify as the scores are only a small portion of the larger qualification picture and many lenders are examining the scores themselves to select buyers with a less risky reasoning for the lower scores. Past missed payments for instance would weigh more negatively on a buyer than a younger buyer just beginning to establish credit. It’s great to see guidelines becoming more situational to determine if a specific person is a worthy borrower with acceptable risk. No one should want to see a return of loose standards, but opening loans up to legitimately qualified purchasers will continue to help the economic recovery.

Stephen Woodall
REALTOR, GRI @ Long Realty Company
Stephen has made real estate his full-time career and passion since 2008, primarily specializing in the Foothills & the Northwest Tucson areas of Oro Valley and Marana. He is a multi-million dollar producer, representing both sellers & buyers. Stephen has tremendous experience in new home sales, listing & selling primary residences, listing & selling vacant land, listing & selling luxury homes, investment properties, rentals, and real estate development parcels.

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