Lending Standards Are Tightening

One bright spot for consumers in this uncertain economic environment is the recent drop in borrowing costs, particularly in home mortgages and home equity lines of credit (HELOCs). While the opportunity to borrow at lower rates is welcomed, it comes with the catch of higher borrowing standards! In fact, JPMorgan Chase, one the country’s largest lenders, is now requiring most borrowers applying for new home mortgages to have a credit score of at least 700 and make a down payment of 20% the new home’s value. In addition, they stopped accepting new HELOC applications altogether! While JP Morgan is just one example of tightening borrowing standards, other lenders will likely follow as uncertainty persists around the coronavirus and its potential impact on the economy. Below are some tips as a result of these new standards:

DO NOT Cancel Home Equity Lines of Credit  

As the saying goes, “Cash is King!” and this is certainly true in our current economic reality. Home equity lines of credit, or HELOCs, which allow borrowers to tap into equity built up in a personal residence, are a great tool to provide quick and easy access to cash. However, as stated above, many lenders are not accepting new HELOC applications, so if you already have one, hold on to it.

Start Planning Now

If looking to make a home purchase over the next year, expect a 20% down payment on the home’s value. In addition, start your home search now to determine the neighborhoods you are interested in and the expected down payments associated with each. Lastly, create a budget allowing you to chip away at the 20% down payment goal over time. For many, this will not be easy, but if owning your own home is a priority then sacrifices must be made. While lending standards may relax again over the next several months, I would not count on it. Start early!

Protect/Improve Your Credit Score

Protecting/ Improving your credit score is well within your control. If you want to take advantage of the current historically low rates, ensure you are conducting an annual review of your credit score with websites such as AnnualCreditReport.com. If any inaccuracies are found, address these as quickly as possible. In addition, improve your credit score by 1) Paying all bills on time (Credit cards are a must!) 2) Utilize programs such as Experian Boost to get credit for timely payments on utility and phone bills 3) Do not apply for new credit unless absolutely necessary and 4) Keep unused credit cards if NOT costing you money. While #4 seems counterintuitive, credit scores are affected by something called the credit utilization ratio. This ratio is calculated by totaling the amount of credit you utilize versus what you have available. By keeping unused cards open, you can drive down this ratio, which helps your score.

Follow The Welch Group every Tuesday morning on WBRC Fox 6 for the Money Tuesday segment.

 Fox 6 Talking Points:

  • Do Not Cancel Home Equity Lines of Credit (HELOC)
  • Start Planning Now!
  • Protect/ Improve Your Credit Score



Marshall Clay CFP, JD, is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.  Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC (“Welch”), or any non-investment related content, made reference to directly or indirectly in this article will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  More information about The Welch Group and important Disclosures can be found on our website. Consult your financial advisor before acting on comments in this article.