Lenders are set to implement revised lending standards that should make it easier for borrowers to obtain mortgages. The new standards, agreed to by lenders and industry regulators in October, reduce borrower credit requirements and could also streamline the amount of time it takes to process and close a mortgage. The new standards relax borrower credit requirements which should make it easier for home buyers with lower credit scores or minor credit issue to obtain mortgages. For example, a lender may be more willing to provide a mortgage to a borrower with a credit score as low as 620, the minimum score for most mortgage programs according to federal regulations, whereas in the past the lender may have required a minimum credit score of 660. Additionally, minor credit issues that do not impact the borrower’s ability to repay the mortgage, such as a one-time late payment, will become a less significant part of the mortgage process and require less time and effort for the borrower to address. It is important to highlight that banks have discretion over how they respond to and apply the new mortgage standards so not all banks will change or relax their lending requirements. Most industry analysts, however, expect the relaxed regulations to be a positive for mortgage borrowers, especially for individuals with less than perfect credit profiles.
What it Means for Mortgage Borrowers
The clarified and relaxed lending standards should benefit borrowers looking to buy a home or refinance their mortgages. FREEandCLEAR provides an in-depth discussion of how your credit score impacts your ability to get a mortgage and understanding your credit profile is one of the first steps in the mortgage process. Additionally, because the lending standards are relatively new and may vary by lender, borrowers should make sure they understand a lender’s borrower qualification and credit score requirements before they select a lender. Borrowers can use the INTEREST RATES function on FREEandCLEAR to review a list of lenders in their area to understand how the new lending requirements apply to them.
The FREEandCLEAR Mortgage Expert