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Lending Standards
Definition
Lending standards are the criteria lenders use to evaluate loan applications, including credit score, DTI ratio, income, and collateral.
Explanation
Lending standards tighten during economic downturns and loosen during growth periods. Key factors include credit score (minimum 620-660 for conventional mortgages), DTI (below 43%), down payment size, employment history, and loan-to-value ratio.
Meeting lending standards is essential for mortgage approval. Improving credit scores, reducing debt, and saving for larger down payments help borrowers qualify for better rates.
Example
After the 2008 financial crisis, lending standards tightened significantly, requiring higher credit scores and larger down payments for mortgage approval.