Shifting economic tides in the mortgage market has lenders looking at buyers in new and approving ways.

With the average 30-year fixed-income mortgage interest rate standing at 7.5% (up 3.88% on a year-to-year basis) and home prices still relatively high compared to historic norms, demand for new mortgages is waning.

That’s a problem for mortgage lenders looking for qualified buyers to sign on the dotted line. After all, fewer borrowers translate into a leaner bottom line.

That’s good news for buyers who figured they didn’t have the requisite credit score or down payment to earn a mortgage.

“While the overall criteria haven’t changed, the ability to get approved has become somewhat easier in recent years,” said Hall Financial Group chief executive officer David Hall. “In 2021, if you had a medium-range credit score or coming to the table with a low-down payment you may have been approved for a mortgage, but you likely wouldn’t get an offer accepted.”

Now, those mortgage applicants with modest credit scores are in a better position to compete in this market because there are fewer buyers and there is more room for negotiation.

“That’s a boost for those who have found it tough to get an offer accepted in recent years,” Hall noted.

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Mortgage Consumer Segments Expanding

A new study sheds more light on what real estate experts call an expanding U.S. consumer mortgage market.

TransUnion’s “Where Will Growth in Mortgage Originations Come From” report, found that “despite an overall decrease in the number of consumers actively seeking a mortgage, some consumer segments remain positioned as potential opportunities for lenders.”

Those segments include demographics like low-income Americans, renters, first-time homebuyers, self-employed Americans, and U.S. veterans, among others.

Study researchers flagged consumers who were likely renters or homeowners and further identified consumers as belonging to LMI (low-to-moderate income), Veterans Administration (VA)-eligible, and self-employed, non-exclusive segments. The report then highlighted consumers in these segments who either withdrew their applications or were potentially turned down for a mortgage.

What the data found was that despite the current low origination environment, “there are a number of sizeable consumer segments with purchase origination potential” for mortgage lenders to work out a deal with eager homebuyers. That’s the case even in a period of high inflation and skyrocketing interest rates.

In fact, 95% of low-to-moderate income Americans are “credit eligible” for a mortgage, including 67% of American renters.

Time to Take Your Shot

With a persistent housing shortage and the highest interest rates in many years, mortgage lenders have seen a decline in applications.

“The current economic conditions could encourage more generous underwriting guidelines depending on a lender’s risk tolerance,” said Laura Adams, financial expert and founder of the money management website, “For instance, they may allow lower down payments, household incomes, and credit scores to continue serving borrowers.”

That’s a positive scenario for Americans who felt they’ve been walled off from home ownership in recent years.

“There are incredible programs to assist buyers with lower down payments, less than perfect credit scores, and for first-time buyers who view the typical 20% down payment as very difficult,” said The Agency Seattle managing partner Jen Cameron. “It takes knowing the right lenders and taking the time to research the right lenders that offer these programs.”

Real estate professionals also say an expanded market is good for consumers and good for the mortgage market.

“Keeping so many consumers away from the home sales market should never have been the case,” Cameron said. “Lending solutions need to be readily available for all would-be homeowners.”

In this current market shift, Cameron believes lenders have more time to assist buyers with working through underwriting conditions and help them through the pre-approval process.

“That wasn’t the case when the market was moving so quickly lenders could barely keep up,” she said. “Consequently, buyers need to get in and take their shot.”

Tips for Getting Approved

Even as the real market opens up for frequently neglected demographic groups, mortgage applicants shouldn’t take anything for granted. Having documents in order, keeping a sharp eye on finances, and being prepared to act fast are all advisable, Adams said.

She offers these mortgage approval tips, as well:

Get pre-approved. One top tip is to shop for mortgages and get preapproval before you start shopping for a home.

“Since lenders evaluate you differently, get multiple mortgage quotes before accepting one,” Adams said. “Otherwise, you may create mortgage stress by purchasing a home out of your price range, which wouldn’t allow you to achieve critical financial goals, such as saving for emergencies and investing for retirement.”

Review your credit health. Check your credit reports to ensure there aren’t any errors dragging down your scores. “If so, get them corrected as quickly as possible and make sure it’s reflected in your credit files,” Adams said.

Save for a healthy down payment. If you can put down at least 20% on a home purchase, “you’ll save money by avoiding private mortgage insurance and getting a competitive interest rate,” Adams added.