Why Rising Mortgage Rates Can Be Your Ticket to Loan Approval

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Home prices in 2021 saw their largest annual increase in 34 years.

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If you weren’t able to get a mortgage in 2021, you might have better luck this year. Thanks to rising interest rates, buyers have a better chance of being approved for a home loan. Mortgage lenders are beginning to relax lending requirements for prospective homebuyers, according to the Mortgage Credit Availability Index, a key measure of how willing lenders are to make home equity loans. This usually happens when interest rates are rising and fewer people are applying for mortgages due to the rising cost of home loans. This slowdown in demand creates an opportunity for homebuyers who may not have previously obtained a mortgage.

Thirty year mortgage Interest rates exceeded the 5% mark for the first time in seven years in April. This increase, coupled with skyrocketing house priceshas also squeezed many buyers out of the market — but now that lenders are trying to boost deals, that means they may approve larger loans and offer an opportunity to buyers who couldn’t compete with the avalanche of all-cash offers that have become commonplace during the peak of the raging pandemic housing market. This move to ease lending standards is especially helpful for cash-strapped buyers or those who couldn’t afford large down payments in a tight market that saw home values ​​rise 19% in 2021, the biggest annual increase in 34 years .

But when lenders start offering larger loans, it’s important to remember that you still need to find a home and mortgage that you can afford.

“Just because you qualify for a certain size loan doesn’t mean you have to borrow that much,” said Greg McBride, chief financial analyst at Bankrate.com. (Like CNET, Bankrate is owned by Red Ventures.) “Ultimately, you’re the one stuck with the payments, and it has to be a payment you can afford, not just now or in your prime, but sustainably month for month.” month, in good years and in bad years.”

Lenders that relax credit standards can also help buyers with lower credit scores get approved for a home loan. In the first quarter of this year, Fannie Mae and Freddie Mac approved nearly 17% of loans to people with credit scores between 620 and 699, up from 9.4% in the first quarter of 2021, according to Inside Mortgage Finance’s analysis of federal mortgage data.

“Credit availability has gradually increased since mid-2021 but remains about 30% lower than in early 2020,” said Joel Kahn, vice president of the Mortgage Bankers Association, in its March mortgage availability report.

The persistence of the credit crunch isn’t necessarily a bad thing, though, McBride said, and it’s still tighter than it was before the pandemic.

“It’s a good thing given the rise in house prices and the risks ahead for the economy,” he said. “We don’t want to go back to 2004-2006, when credit standards continued to loosen even as house prices rose to nosebleed levels. It didn’t end well.”

although interest rates rise isn’t necessarily a good thing when it comes to getting a mortgage – you end up paying tens of thousands of dollars more over the life of the loan – higher interest rates have opened the door for buyers who couldn’t otherwise get into the housing market.

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