Mortgage Guidelines Outlook Due To Economic Slowdown

2025 Update: Mortgage Guidelines Outlook Due To Economic Slowdown

Last Updated: March 19, 2025

Continuous shifts in the economy are forcing the mortgage sector to respond, which is, unfortunately, making it more challenging for new home buyers and people looking to refinance their mortgages. The current economic situation and previous internal and external challenges have shaped how mortgage policies are set today. This assessment looks at the ongoing market trends. It predicts what changes would be observable in guidelines set for borrowing in the modern economy.

Current State of Mortgage Guidelines Outlook

Mortgage rates have seen a lot of turbulence over the past few years. Historically low levels were reached during 2020-2021 when some 30-year fixed rates were below 3%. Now (at the start of 2025), these rates have leveled out but remain significantly higher compared to the previous years. After the economy recovered and there was concern over inflation, rates drastically increased based on current indicators. The past few years have witnessed extreme changes as the economy faced inflationary pressures post-pandemic.

Key Factors Influencing Today’s Mortgage Guidelines Outlook

• Concerns regarding inflation and the monetary policy of the Federal Reserve
• Restrictions regarding the supply of houses
• Stability with employment
• Changes in policies within the mortgage sector
• Demand for mortgage-backed securities in the secondary market

Mortgage Guidelines Outlook on Credit Score Requirements: More Stringent Standards  

The most notable shift within the mortgage guidelines is the stricture of credit score requirements.

Government-Assisted Loans  

• FHA Loans: Although the FHA allows credit scores as low as 500 (with 10% down) or 580 (with 3.5% down), many lenders enforce overlays requiring 620-640 minimum scores.
• VA Loans: While the VA technically sets no minimum credit score, most lenders have adopted the norm of requiring scores above 620.
• USDA Loans: Generally, lenders are set at 640+ credit score benchmarks, and fewer can stoop below this number.

Conventional Loans  

• Fannie Mae/Freddie Mac: Although the technical minimum remains at 620, the preferred pricing conventionally starts at 680, with the best rates reserved for clients with 740 or higher.
• Jumbo Loans: Most lenders have raised the minimum scores to 700+ for their best rates, requiring a credit score of 720-740.

Mortgage Guidelines Outlook on Debt-to-Income Ratio (DTI) Constraints

Lenders are exercising more caution regarding debt and income ratios:

• Most lenders have reduced the maximum DTI ratios.
• Some compensating factors (e.g., significant reserves) must be accepted for higher DTIs.
• Additional self-employment income verification is needed for some borrowers.
• Income (bonuses, commissions) is now considered closely.

Requirements for Down Payments

Even though low down payment options still exist, the most favorable terms are now usually associated with higher down payments.

• Conventional Loans: The most favorable pricing is obtained with 20% or more down.
• Jumbo Loans: Many lenders now prefer a 20-25% minimum down payment.
• Investment Properties: The required down payment has risen 25-30%.

Overlays of the Lender  

It is common practice to impose further restrictions outside of the provided agency guidelines. These additions are referred to as lender overlays. They vary by lender but often will include:

• Heightened minimum credit requirements.
• Stricter limitations on maximum DTI ratios.
• Added reserve stipulations.
• More strict requirements for verification of income.
• Limitations are based on the type of property.

Lenders typically have fewer restrictions for borrowers with unideal profiles, making it easier for those who one lender denies. It’s important to note that just because one borrower is denied does not mean all other options are unavailable.

Mortgage Guidelines Outlook: The Emergence of New Innovative Financing

The tightening criteria of conventional loans have given rise to a multitude of specialized mortgage options, including:

• Specialized Non-QM (Non-Qualified Mortgage) Loans
• Bank statement loans for self-employed individuals
• Asset depletion programs for retirees and high-net-worth individuals
• DSCR loans for cash flow positive properties enjoyed by investors
• Recent credit event programs for financially distressed borrowers

Clinical Down Payment Assistance Programs

• Other state and local government-sponsored housing finance agencies.
• Employer-sponsored affordable housing programs.
• Community-assisted initiatives.
• Special programs for educators, healthcare personnel, active and retired first responders

Geographical Differences in Loan Eligibility Guidelines

Considerable attention is paid to the following geographical areas with unique considerations in the matter of mortgages:

• Higher-than-average housing costs
• Areas with high economic sensitivity
• Areas with unique deal types or properties as well as climatic features
• Differences in lending in urban and rural areas

How To Search For A Lender In The Current Lending Climate

Because lenders differ so significantly, here are a few things borrowers should keep in mind:

1. Look for at least three to five lenders
2. Get in touch with a mortgage broker who works with several lenders
3. Focus your search on lenders who cater to specific loan types or situations.
4. Evaluate lender services and their ratings from the Better Business Bureau
5. It is best to disclose anticipated application hurdles

Approaches for Borrowers in the Current Market

For Those with Strong Credit Profiles

• Shop around for multiple lender quotes
• If you plan on keeping the home long-term, consider paying points for a lower interest rate.
• Increase borrowing terms to 15 or 20 years to save on interest.

For Those with Credit Challenges

• Request the help of a broker who knows the lenders and has relaxed guidelines.
• If obtaining a conventional loan is difficult, consider going for an FHA loan.
• Consider portfolio lenders who do not sell the loans they give out.
• Look into other lending options if your situation is unique and tailored solutions are necessary.

Mortgage Guidelines Outlook for 2025 and Beyond

As the economy adjusts to new norms, it is expected that guidelines will continue to change:

• Credit requirements may ease a little when the economy settles.
• Affordability issues will result in the creation of new mortgage products.
• The application process will still be simplified using technology.
• More focus is placed on sustainable homeownership, and the center will shift to repaying ability.

Even though today’s mortgage guidelines are stricter than those of the 2020-2021 ultra-low rate environment, opportunities exist for well-prepared borrowers.

Following your goals, considering multiple lenders, and cooperating with experienced professionals can help you overcome the challenges presented in the current mortgage market.

Always remember that mortgage regulations are subject to change, and what stands true today can differ in a matter of a few weeks or months. In today’s complex lending world, finding a loan officer aware of the shifting guidelines is crucial for achieving your goals.

*This article is intended solely for informational purposes and must not be taken as financial advice. A licensed mortgage advisor should be consulted for tailored advice particular to your circumstance.*

Archive: Original Blog from August 19, 2018

*The coronavirus epidemiology will impact lower-tier credit borrowers using the economic slowdown and high inflation as inflection levels. The borrowers who are getting impacted the most are, unfortunately, those who are lower-tiered in terms of credit points. Mortgage rates hit a shocking 7.0% in a little over a year.*

*Just shy of a year ago, mortgage rates stood at an astonishing 2.5% for a 30-year fixed-rate mortgage. A huge number of lenders have lost business over the pandemic. Those that haven’t closed shop are operating with next to no margin for profit. Many lenders will shut down within the next six to twelve months. In the upcoming sections, we will elaborate on the outlook of mortgage guidelines due to huge inflation rates and unprecedented inflation numbers.*  

[…original content continues…]

This blog will cover the mortgage guidelines outlook due to the economic slowdown and high inflation. Mortgage Guidelines Outlook Due To Economic Slowdown of the coronavirus will affect borrowers with lower credit scores. Mortgage rates skyrocketed to over 7.0% in 12 months.

A little over a year ago, mortgage rates were as low as 2.5% on a 30-year fixed-rate mortgage. Many lenders have gone out of business. The ones that have not shut down are operating on a very thin margin. Many lenders will be out of business within six to 12 months. In the following paragraphs, we will be discussing mortgage guidelines outlook due to skyrocketing rates and historic high levels of inflation.

Is 2023 Going To Be a Better Year To Buy a House?

Mortgage guidelines outlook due to high rates and economic slowdown seem bleek. Non-QM mortgage lenders are adding more overlays on non-QM and alternative mortgage loan programs. Government and conventional loans are seeing a lot of overlays being implemented by lenders.

The mortgage industry took a major hit due to the economic coronavirus pandemic. One topic the media is not covering is the changes in the mortgage industry after the economic shutdown in the United States. Many lenders have suspended operations. All non-QM lenders have halted operations on non-QM loans.

Mortgage Guidelines Outlook on Non-QM Loans

Borrowers who locked their non-QM loans and got clear to close are now null and void. Many non-QM lenders went out of business. Only two national non-QM lenders may still be in business where. They will be making an announcement within a few weeks. Many lenders imposed overlays on credit scores.

Many lenders with minimum credit score requirements on FHA loans of 580 FICO have raised them to 640 to 680 credit scores. There are no minimum credit scores on VA loans. However, most lenders implemented lender overlays on VA loans. Now most lenders require a 640 to 680 FICO on VA loans. Most lenders have stopped doing manual underwriting and other specialty loan programs such as DPA, one-time construction, 203k loans, and reverse mortgages. The great news, it is business as usual at GCA Forums Mortgage Group.

Mortgage Loans For 500 Credit Scores

GCA Forums Mortgage Group still originates and underwrites government loans with under 620 credit scores and down to 500 FICO. We are one of the few national lenders that have not raised credit score guidelines on government and conventional loans.

GCA Forums Mortgage Group has zero lender overlays. This article will discuss and cover the Mortgage Guidelines Outlook Due To Economic Slowdown.

Changes In Mortgage Guidelines Outlook Post COVID-19 Scare Tactics

The coronavirus pandemic has hit the U.S. like a category-10 hurricane. The U.S. economy was stronger than ever before the coronavirus pandemic hit our nation. The stock market was at an all-time high, the unemployment rate hit a 50-year low, homeownership hit a historic high, and the housing market forecast was strong. Then disaster hit. The coronavirus outbreak hit the United States, and the U.S. economy abruptly stopped.

Millions of businesses have closed and are operating at limited capacity. Unemployment claims hit 10 million in the past two weeks and are expected to increase substantially. Unemployment numbers came in north of 700,000 and are expected to hit as high as 30% in the coming weeks.

Mortgage Guidelines Before Coronavirus Outbreak

The economy was stronger than ever until the coronavirus pandemic. President Trump and his administration have implemented the coronavirus stimulus package to slow the economic damage from the pandemic. Home purchase mortgage applications have greatly decreased due to fears of homebuyers not having a job.

Many Americans fear a recession far worse than the 2008 financial crisis. Many homebuyers who planned on buying a home in 2023 have halted their plans. However, homebuyers still want to purchase a home in 2023. Due to the coronavirus pandemic, many are worried about the mortgage guideline’s outlook.

Understanding Agency Mortgage Guidelines versus Lender Overlays

FHA, VA, USDA, Fannie Mae, and Freddie Mac have not changed their agency guidelines. All lenders must ensure their borrowers meet the minimum agency mortgage guidelines. However, lenders can have higher lending requirements called lender overlays. Lenders can have overlays on just about everything.

For example, lenders have increased lender overlays on credit scores across the board due to the economic meltdown due to the coronavirus. For example, many lenders with a minimum 580 credit score requirement on a 3.5% down payment FHA loan have increased their overlays on credit scores to 640 to 680 FICO.

VA Loans With No Overlays

The same goes for other loan programs. VA loans do not have any minimum credit score requirements. However, due to the liquidity issues on the secondary mortgage markets, many lenders have increased credit score requirements to 640 to 680 FICO on VA loans. Many lenders have imposed tougher debt-to-income ratio overlays as well. The reason for increased lender overlays by mortgage companies is secondary mortgage markets.

Investors are shying away from buying mortgage-backed securities (MBS) on loans under 640 credit scores. Loans under 680 FICO are now considered higher-risk loans. Rates are higher, and most lenders will charge discount points.

Mortgage Lenders For Bad Credit With No Overlays

The good news is Gustan Cho Associates have not implemented any lender overlays during the coronavirus pandemic. We still originate and fund mortgages with under 620 credit scores and down to 500 FICO.

For example, one of our loan officers recently locked a VA loan with 530 FICO charging 2 points. Not all lenders have the same requirements on FHA, VA, USDA, and conventional loans.

Shopping For a Mortgage With Lower Credit Scores

As mentioned earlier, all lenders need to meet the minimum agency lending requirements. However, lenders can have their own higher standards called lender overlays. For example, if you get turned down for an FHA loan with a 630 credit score from one lender, this does not mean you cannot qualify for an FHA loan with another lender that either less low credit overlays or no lender overlays. Dale Elenteny says the following about mortgage guidelines outlook as follows:

Chase Mortgage has stopped doing FHA and other government loans until the mortgage crisis is over. They will only originate and fund conventional loans for borrowers with over 700 credit scores and a 20% down payment. GCA Forums Mortgage Group has zero overlays on government and conventional loans.

For more questions about this article or other mortgage-related topics or to qualify for a mortgage with a lender with no overlays, please contact us at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at GCA Forums Mortgage Group is available seven days a week, evenings, weekends, and holidays.