The past few years have been marked by runaway inflation that increased the price of nearly everything in our lives. Milk at the grocery store, gas prices, and even housing prices have seen record inflation since the start of the pandemic. However, the loosening of restrictions in the housing market now makes it easier for many homeowners to qualify for a home loan.
Are you curious about whether or not you qualify for a loan in today’s housing market? This article explains some of the reasons why you may now qualify for a loan due to regulatory changes in the housing market.
Regulatory changes impacting the housing market
Every once in a while, lending standards need to be altered to account for changes in consumer behavior, housing prices, and current events. One example of this need for regulatory change was in response to the financial crisis of 2008. The Dodd-Frank Act was a sweeping bill that overhauled the financial services industry and tightened restrictions related to investing, stock trading, and home ownership.
One regulatory metric that is changed often is the conforming loan limits on mortgages. In 2023, the conforming loan limit for most areas in the United States is $726,200, which is up from $647,200 in 2022. Conforming loan limits set the threshold for what’s considered a jumbo mortgage–which comes with different terms and conditions than a standard conventional mortgage.
Another change that affects people’s ability to qualify for a loan is the maximum debt-to-income ratio lenders will approve borrowers at. The debt-to-income ratio (DTI) shows lenders how much debt you currently have compared to your monthly income. Higher DTI ratios indicate more debt and higher risk for lenders, so allowing borrowers with high DTI ratios to qualify for a mortgage may make homeownership more accessible.
A key part of any mortgage application is the borrower’s credit score. Good credit scores show a credit history with on-time payments and the ability to repay debts over time. On the flip side, a low credit score is a red flag for lenders and shows them that a borrower is at a higher risk of defaulting on their loan. Because of this, lenders and government agencies set credit score minimums that establish a baseline credit score to qualify for a loan.
However, some lenders get special approval to issue loans to borrowers with credit scores that don’t meet minimum requirements, which may allow some borrowers with bankruptcies, delinquencies, and other blemishes on their records to qualify for a home.
The impact of regulatory changes
Regulatory changes in the housing market are often made in response to an event (such as the 2008 financial crisis) or to stir homeowner activity in the housing market by making it easier for people to qualify for home loans. By making homeownership more accessible to low-income borrowers, purchase activity should increase and stimulate the housing market.
Do you want to get the home-buying process started? Contact the Kim Holland Homes Team to start searching for your dream home in the Massapequa area.