Mortgage lending standards are so tight that homebuyers must have ‘pristine’ credit histories, study says, as sales head for 31-year low

The housing market has been stagnant since the COVID-era boom ended, with factors such as higher borrowing costs, limited supply, and soaring home prices to blame. However, stricter lending rules implemented after the housing crisis that triggered the Great Financial Crisis are also making it harder for potential homeowners to secure mortgages, according to a recent study from Pew Charitable Trusts.

These stricter standards have helped curb delinquencies and defaults, but have also made it more challenging for many Americans to qualify for a mortgage, noted Adam Staveski, a principal associate with Pew's housing policy initiative. The study found that the share of mortgage originations going to borrowers with credit scores between 600-699 dropped by 13.3 percentage points to 22.3% between 2005 and 2024, while the share of originations for borrowers with scores of 700 or higher surged by 24.9 percentage points.

Staveski highlighted that credit scores generally benefit borrowers with long histories and substantial financial reserves. Consequently, the more stringent lending environment is disproportionately affecting young adults, low-income families, rural communities, as well as Black and Hispanic households. Despite the fact that some potential borrowers may not be financially prepared for a mortgage, others are being excluded due to a thin or nontraditional credit history, or because of the high federal government's credit standards.

The latest housing market data suggests that conditions are not improving. The 30-year fixed rate mortgage rose to 6.76% from 6.71% last week, according to Freddie Mac, marking the highest rate since June 2025. Additionally, sales of existing homes declined by 2% last month, reaching 3.98 million units, a seasonally adjusted annual rate, marking the third consecutive monthly decline and a 1.2% drop from the previous year.