Borrowers with high credit scores take the wheel in steering the home purchase through mortgage industry as lenders find it easier to lend to those who have good credit profile.
According to thefiscaltimes.com, Black Knight Financial services have released a report showing that "The volume of mortgages excluding refinancing is up 11 percent year over year in the third quarter but only one in five of those loans was taken out by a borrower with a credit score below 700."
Scott Sheldon, a loan officer with Sonoma County Mortgages in California, also said that "The average credit score of my borrowers is 20. They have a lot more oomph. My borrowers' credit profiles have been getting a lot stronger in the last eight months."
Borrowers with high credit score happen to have low debt in proportion to their income and they usually have 15 to 20 percent in cash for the home purchase's initial payment.
Despite of the good ratings of the borrowers, the figures can't really say that the market is healthy. As lenders favor borrowers with good credit profile, more people are not engaging in purchasing home due to their credit scores. John Stearns, senior mortgage banker at American Fidelity Mortgage in Milwaukee, said "The housing market depends on a lot of people participating."
In a report by cnbc.com, most home purchasers these past few months are those who have a credit score of 720 and the median credit score in the U.S. is 720 also. However, the average credit score of the borrowers is 695. Black Knight said that "just 20 percent of purchase originations over the past three months have come from borrowers with credit scores below 700, the lowest level in more than a decade."
The government has been offering different programs for borrowers with low credit score such as FHA loan program which is insured by the government. The program allows the borrower to "pay mortgage insurance" but "they also may not get the lowest interest rate available on their loans."
What are your thoughts about this trend of lenders favoring the high credit score borrowers? Share it in the comments!
