Consumers who are seeking a new home loan these days, whether it's backed by the federal government or not, are now required to have both top-notch credit scores and the ability to make significant down payments on their mortgage.
New data from the technology firm Ellie Mae shows that consumers who want to obtain home loans will now need both an extremely high credit rating and a significant down payment if they want to qualify, according to a report from the Los Angeles Times. In February, the average consumer who found they were approved for traditional home loans had a score of 764 and could make a down payment of 22 percent.
Meanwhile, those who applied for a traditional mortgage but were rejected had an average credit rating of 732, but only proposed down payments of 19 percent, the report said. That figure is slightly below the 20 percent that was controversially recommended by the Obama administration in recent months. Currently, Fannie Mae and Freddie Mac - the two government-controlled mortgage backing firms - consider a score between 620 and 640 good enough to obtain a "prime" mortgage, and the median credit rating for all consumers is just 711.
Those seeking loans through the Federal Housing Authority - which is designed to help consumers with more difficult financial circumstances obtain home loans - found their qualification standards weren't much easier, the report said. The average accepted applicant had a credit rating of 701 and down payment of 5 percent - well above the agency's mandated minimum of 3.5 percent - while the average denied applicant had a rating of 666 and down payment of 6 percent.
Experts noted that while consumers' credit ratings are often good enough to obtain more or less any type of credit, it's their down payment sizes that are giving lenders pause, the report said. Down payments that would have traditionally been approved - some as low as 10 or even 5 percent - now require near-perfect scores to even be considered.
Because the economy is still recovering and many lenders are relaxing standards for other types of credit, they are trying to insulate themselves from the most significant risk - that posed by sizable home loans - because the housing market is still very much uncertain.
