It Hasn't Been This Hard to Get a Mortgage Since March 2013

The struggle for home buyers is getting even more intense.

Anyone who's in the market for a home right now is apt to be met with some challenges. For one thing, housing inventory is still quite limited and home prices are still way up. Plus, mortgage rates are the highest they've been in over a decade. That's creating a "double whammy" scenario where buyers get the worst of all worlds -- they're stuck paying more for a home as well as a mortgage.

But that assumes they can get a mortgage in the first place. That, too, has been getting more difficult. And it may be forcing more buyers to pull out of the market.

Mortgage lenders are getting stricter

In the wake of the 2008 housing crisis, mortgage lenders have gotten stricter about imposing borrowing standards. And that makes sense.

Lenders don't want to risk extending mortgages to borrowers who aren't likely to be able to repay them. And while lenders get some protection in those situations -- namely, because they can force delinquent borrowers into foreclosure -- that's really not the business lenders are in. Rather, lenders generally just want to collect their interest and be done with it.

Meanwhile, in recent months, lenders have been tightening their standards even more, to the point where mortgage credit availability is at its lowest level since March 2013, as per the Mortgage Bankers Association. And that means borrowers may have fewer options for getting a home loan during the tail end of 2022 as well as during 2023.

Why are lenders tightening up?

Loaning out money comes with risk. Lenders can compensate for that risk by imposing higher borrowing rates on mortgage applicants whose credit isn't so great. But ultimately, that doesn't mitigate the risk of not getting repaid so much as sweeten the deal, so to speak. And with so much talk about an economic recession hitting at some point in 2023, it's easy to see why lenders may be hesitant to dish out large loans.

There's also the question of property values to consider. Right now, homes might appraise for higher numbers than usual due to general market conditions. But if the economy declines next year and the housing market follows suit, lenders could end up in trouble in situations where a borrower can't make their payments and their home's value has dropped substantially.

What mortgage applicants can do to increase their chances of success

Clearly, now's not an easy time to get a mortgage. But those who are serious about buying in the near term can take steps to present themselves as more appealing loan candidates.

There are two specific steps mortgage applicants should take right now -- boosting their credit scores and reducing their debt-to-income ratios. A higher credit score indicates that a borrower is less of a risk, and right now, that's what lenders want to hear. Meanwhile, a lower debt-to-income ratio tells lenders that a given borrower is not too overextended on debt. And that, too, can spell the difference between getting approved for a mortgage or not.