Mortgage rates are at record lows, but borrowers are increasingly likely to have their mortgage applications denied as lending standards tighten amid the pandemic-induced recession. The Mortgage Credit Availability Index, which is the Mortgage Bankers Association’s measure of the willingness of lenders to issue mortgages, recently fell to its lowest point since 2014. 

Lenders are pulling back in the face of an array of challenges during these unprecedented times. They’re not sure how well employment will rebound…it’s unclear how much forbearance programs, which give homeowners breaks on mortgage payments for six months or potentially a year, will affect lenders’ bottom lines…and lenders recently were blindsided by a new 0.5% mortgage-refinance loan surcharge imposed on them by Fannie Mae and Freddie Mac. 

If you’re a well-qualified borrower who wants a mainstream mortgage, you should have no trouble finding lenders that are happy to work with you. But you might struggle to obtain a loan if…

Your credit score is below 640. Scores as low as 620 or even 580 usually are sufficient to qualify for mainstream mortgage products, but lenders are becoming cautious about borderline scores. 

Your loan-to-value ratio is above 95%. If your down payment is less than 5%, your odds of being turned down are even higher than before.

You lack documents. Lenders are becoming less forgiving of borrowers who can’t provide W-2 forms or other documents to prove their incomes—a problem for self-employed borrowers.

You need a large mortgage. Jumbo mortgages—in 2020, that’s mortgages larger than $510,400 and $765,600 in high-cost areas—pose additional risks for lenders because they’re not easily resold. 

What to do: If one or more of the mortgage-approval complications above apply to you, work with a mortgage broker. Brokers make their living by tracking down mortgage products appropriate for their clients. Brokers typically are paid by lenders, but some fees could be imposed on borrowers, too. Also reach out to credit unions, which sometimes have more flexibility or different policies than other lenders.