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    Since 2009, the government has imposed massive regulations on banks to avoid a repeat of the housing crisis. The Consumer Finance Protection Bureau developed the rules, which were mandated by the Dodd-Frank Act, to prohibit many of the loose practices prevalent during the housing bubble, such as NINJA loans.

    As a result, conventional mortgage lenders’ requirements have become very stringent, making it more difficult for buyers to qualify. Borrowers could previously be approved with lower credit scores and down payments. Most lenders now require a credit score of at least 700 and a 20% down payment.

    According to a new Nerdwallet report, two-thirds of Americans who planned to buy a home in 2021 were unsuccessful, with 16% citing that they postponed or cancelled their plans because they couldn’t qualify for a mortgage.

    They reported that the top three reasons preventing homeownership were:

    • Not having saved enough for a down payment
    • Insufficient income
    • Low credit score

    According to the Consumer Financial Protection Bureau, borrowers’ monthly payments have increased as a direct result of higher interest rates for everyone.

    They report that the average monthly payment for 30-year fixed-rate conventional conforming mortgages increased by approximately 36.9 percent for Black borrowers, 36.7 percent for Hispanic white borrowers, 37.7 percent for non-Hispanic white borrowers, and 32.3 percent for Asian borrowers during the same period.

    For many mortgage applicants who are on the margin of qualifying, the higher projected debt-to-income ratio (DTI) could potentially lead to their applications being rejected, when they would have otherwise been approved if they had a lower DTI. 

    Compared to 2021, DTI has become more likely to be reported as a denial reason for denied Black, Hispanic white and non-Hispanic white applications in 2022. 

    And Now, The Good News

    What many borrowers don’t know is that they have options. You do not have to deal with the strict guidelines of conventional lenders or the big banks to get a mortgage.

    There are alternative ways and they’ve been out there a long time. The easiest mortgage to qualify for depends on your wants and needs.

    There are FHA loans, known for allowing lower minimum credit scores, and Fannie Mae HomeReady loans which are great for those struggling to come up with a down payment.  

    Option #1: Fannie Mae HomeReady Loans

    For low-income buyers who are struggling to save for a down payment.

    Fannie Mae’s HomeReady mortgage program provides low-income home loans to prospective homebuyers with a small down payment. The guidelines are more flexible to make it easier for borrowers to qualify, and monthly insurance can be lower than with conventional loans. Buyers may also use gifts or grants to cover their down payment and closing costs.

    Both first-time homebuyers and repeat buyers are eligible. If all borrowers on the loan are first-time buyers, at least one must complete the homeownership education requirement.

    Eligibility requirements:

    • Minimum 620 credit score
    • Minimum 3% down payment
    • Maximum 80% of the area median income (AMI)

    Option #2: FHA Loans

    For buyers with a credit score under 620.

    FHA loans funded by approved lenders are insured by the Federal Housing Administration (FHA). Because of their lenient requirements, FHA loans can be a good option for homebuyers who cannot meet the 620-credit threshold required by conventional loans or who are unable to afford the loan’s closing costs.

    With a credit score as low as 500, you may be able to qualify for an FHA loan, but you will be required to make a larger down payment. Regardless of credit score or down payment amount, all borrowers must pay upfront and annual mortgage insurance premiums. FHA borrowers who put down the required 3.5% pay FHA mortgage insurance for the life of the loan.

    Eligibility requirements:

    • 500 to 579 credit score and minimum 10% down payment
    • 580 credit score and minimum 3.5% down payment
    • Meeting your county’s FHA loan limits

    Let Us Help You Get into Your Dream Loan

    From offer to financing to closing, Embrace Home Loans® offers a complete range of lending solutions and programs that can help you get into the home of your dreams.

    When you need us, we’ll be ready with a wide array of programs just right for you and your specific needs quickly and professionally. Contact us today and see why so many home buyers choose Embrace Home Loans®.

    Your mortgage options for a smooth journey home.

    Get expert guidance and personalized solutions for a stress-free mortgage experience.