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Increased Mortgage Credit Availability to Help First-Time Homebuyers


The U.S. housing market slowed down at the onset of the COVID-19 pandemic, but it’s been recovering a lot faster than other sectors of the economy, buoyed by increased buyer demand and record low-interest rates. As the residential real estate recovery continues, the availability of home loans increased in March 2021, according to the latest Mortgage Credit Availability Index (MCAI) report from the Mortgage Bankers Association (MBA).

Stringent Lending Conditions Make It Harder to Own the First Home

Mortgage credit has been elusive to borrowers without stellar credit qualifications for most of 2020. That year, lenders issued 70% of their mortgages to buyers with credit scores of 760 or higher. This is slowly changing as more lenders loosen up their mortgage credit availability.

How Mortgage Credit Availability Indices (MCAI) Improved in March

As of March, the MCAI index stood at 125.4 after jumping 0.6%. The increase indicates that lenders are generally loosening up the requirements to qualify for a mortgage. This affords first-time homebuyers with a relatively lower credit score an opportunity to own a home.

The Conventional MCAI rose by 0.8%. With the Conforming MCAI rising by 0.2%, there’s a glimmer of hope for buyers seeking out low-risk financing guaranteed or otherwise secured by Fannie Mae and Freddie Mac. The Jumbo component of the Conventional MCAI soared 1.5%.

Jumbo mortgages are high LTV products associated with more stringent requirements, including a stellar credit score and a substantially low debt-to-income ratio. If lenders are gradually relaxing qualification requirements for these home loans, they’re demonstrating stronger confidence in recovering luxury real estate and highly competitive housing markets.

According to the MBA report, the Government MCAI jumped 0.4% to its highest level in 12 months. The index tracks different types of home loans backed by federal agencies like the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS). In the past seven months, this is the sixth time the index has increased.

How First-Time Homebuyers Can Benefit

Recent data shows that 43% of new home buyers in 2021 were first-timers. This group constituted just 32% of buyers in the new home market in 2018.   About two-thirds of homebuilders claim to have sold more than 20% of their properties to first-time home buyers. Also, 27% of these developers reported having sold more than 50% of their new homes to first-timers.

This generation of buyers isn’t always able to satisfy stringent mortgage qualification requirements. Higher debt-to-income ratios due to factors like servicing student loans, lack of enough savings, and poor credit scores are some of the reasons why first-timers are unable to own homes. With most lenders relaxing mortgage credit requirements, most of these buyers are getting closer to owning their first residential property.

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