Mortgage rates are at record lows, but it is harder to get one now. Banks have tightened lending standards, in some cases significantly, giving potential home buyers a new headwind.
Economic uncertainty and skyrocketing unemployment are among reasons.
“The main thing that is impacting these lending standards is really the uncertainty about who might lose their job and who will be able to maintain payments on their mortgages,” Taylor Marr, lead economist at Redfin, told WTOP.
“If there is uncertainty that a new loan may not get paid even in the first month or in the future if the person might lose their job soon, then they are really going to pull back,” he said.
In addition to stronger credit scores — typically now a minimum of 700 — and incomes, many lenders are now requiring at least 20% down payments on purchases, which is particularly challenging for potential buyers in the D.C.-area.
“A lot of people in D.C. do put less than 20% down. So lenders now requiring 20% down on all mortgages, that would have a significant impact on an area like D.C., where housing is expensive, requiring people to put less down,” Marr said.
In 2019, 58% of all home sales that closed in the Washington, D.C., metro were loans with less than 20% down, rating third among the 50 largest metros for the share of sub-20% down payments.
Redfin estimates that about 25% of its buyers last year would not have been approved for their mortgage under current lending standards.