Your mortgage application is more likely to get a yes now, new data shows

Mortgage lenders are relaxing their credit standards in hopes of appealing to qualified borrowers, according to a mortgage industry trade group.

Lenders tightened their requirements when the pandemic hit — approving only borrowers with good credit and stable jobs — but they've been taking a more relaxed approach since last fall.

So if you’ve been saving for a down payment and working on improving your credit score, this could be time to jump on the property ladder — especially with mortgage rates still at historic lows.

It’s easier for borrowers — but not a slam dunk

Mortgage credit availability — a measure of how willing lenders are to provide home loans — has been trending upward and grew by 1.4% in May, the Mortgage Bankers Association reports.

The latest increase has boosted mortgage credit to its highest level since the early days of the pandemic, says Joel Kan, the MBA’s chief forecaster.

The increase, Kan says, was driven by a 3.5% increase in the availability of conventional home loans. Conventional mortgages — the most common type — are not backed by the government but instead follow guidelines set by mortgage giants Fannie Mae and Freddie Mac.

Those loans tend to have the toughest requirements, making it hard for lower-income borrowers or those who have bad credit to qualify.

If you’ve been wanting to apply for a mortgage but aren't sure your credit is up to par, it’s easy to get a peek at your credit score for free.

Pandemic caused lenders to toughen restrictions

Many large banks tightened their lending standards at the beginning of the COVID crisis, fearing that people wouldn't be able to pay back their loans. Chase, Wells Fargo and others wanted borrowers to come to the closing table with 20% down payments and credit scores of at least 680.

Meanwhile, mortgage originations to borrowers with top credit scores have been on the rise, as Americans who were able to keep their jobs throughout the pandemic and save money along the way are now buying bigger homes or refinancing their loans.

In the first three months of 2021, 73% of mortgage originations went to borrowers with credit scores over 760, according to the Federal Reserve Bank of New York. That was up from 71% during the last three months of 2020.

Meanwhile, Americans seeking government-backed mortgages, like FHA and VA home loans, saw credit standards for those loans tighten just a touch last month, the MBA says.

Looser purse strings on high-end borrowers

On the other far end of the spectrum, borrowers with the biggest budgets are enjoying more relaxed standards.

The supply of jumbo loans — that is, big-ticket mortgages on the most expensive homes — has been on an upswing.

Credit availability for jumbos jumped 5% last month, though the loans are still about twice as difficult to land as they were in February 2020, the MBA data shows.

"A rapidly improving economy and job market has freed up jumbo credit, as banks have deposits to utilize," Kan says. "However, there is still plenty of restraint, as many sectors have not fully returned to pre-pandemic capacity."

How to improve your odds of getting a mortgage

If you’re not one of the high rollers, or you don't have pristine credit, there are ways to improve your financial situation so you can qualify for one of today's low mortgage rates before they slip away.

Comparison shopping works well for finding the lowest mortgage rate available in your area and for a person with your credit score. Studies from Freddie Mac and others have found that borrowers who seek out loan offers from at least five different lenders generally save thousands over time.

If you can stand to add more points to your credit score, try paying down your credit card debt with help from a lower-interest debt consolidation loan.

And, to build up a down payment, consider a lower-stakes way to earn returns in the stock market. One popular investing app helps you grow your "spare change" in a diversified portfolio.