Over the weekend changes were made to JP Morgan Chase’s underwriting criteria for potential buyers. This comes after the bank decided it wanted to lower its risk while continuing to evaluate the economic impacts of COVID-19.
The company announced that all customers applying for new mortgages will need to have a credit score of at least 700 and will be required to make a down payment of at least 20% on the value of a home, as recently reported by Reuters. By comparison, the Mortgage Bankers Association (MBA) estimates that the average down payment today is about 10% of a home’s value.
In a nutshell, higher scores equals fewer potential buyers. The US has been running at historically low housing inventories for years and a smaller pool of buyers can give the buyer a slight leg up during negotiations. Higher down payments also lower the purchasing power of potential buyers.
“As investors, it may be a good time to consider the amount of risk you’re taking today and how you could position yourself to succeed should this trend of stricter lending take root.”