Redfin reveals that while nearly half of all Americans purchased homes last year with down payments of less 20%, tightened lending standards could provide roadblocks to homeownership.
The Mortgage Credit Availability Index fell 16% in March to its lowest level in five years, with Redfin saying banks are growing wary of borrowers requesting delayed payments in forbearance programs.
As estimated 25% of the loans written by Redfin last quarter may not have been possible to originate under new standards.
"Thousands of Americans who were priced out of the housing market due to the affordability crisis of the past decade might finally see homeownership as within reach, especially given historically-low mortgage rates. But unfortunately, they are now faced with another roadblock and may not be able to get a loan," Redfin Senior Economist Sheharyar Bokhari said. "Home equity is the primary way for Americans to build wealth. It's important that policymakers address this tightening of credit, as it has raised the barrier to homeownership."
The report adds that banks have begun to steer away from jumbo loans, which are used for more expensive homes. Average borrowers, however, are also being squeezed.
JPMorgan Chase raised its credit score minimum to 700 and began requiring applicants to have enough savings for a 20% down payment. Wells Fargo is also shying away from riskier loans for borrowers who are unable to provide down payments of 20% and increased its FICO-score requirement to 680.
“As unemployment continues to skyrocket and more homeowners default on their mortgages, other banks may follow suit,” Redfin said.
Virginia Beach, Virginia, was the highest among the 50 metros studied with 70% of home sales being financed with a down payment of less than 20%. This is mostly due to the region being home to a large military population, many of whom take out VA loans that don’t require down payments.
Camden, New Jersey, came in at second at 58.5%.
"It's not just Americans in relatively affordable areas like Virginia Beach who are bearing the brunt of tighter lending standards," Bokhari said. "Buyers at both the low and high ends of the market seem to be having the most trouble getting loans right now, leaving the middle of the market relatively unscathed."