High Credit Scores Have Value
Mortgage rates are still hovering near historic lows and home buyers want to take advantage of them. As the pandemic gets under control and the economy heats up, more and more people want to buy a house. However, in spite of the pandemic, the real estate market has seen a meteoric rise. Many have even tried to find comparisons to the past year’s home buying spree and the runup to the housing market crash. However, today’s real estate market and the one leading up to 2008 are very different. In the lead up to 2008, many people were buying homes hand over fist because lenders were willing to provide mortgages to almost anyone. That is not happening today. Lenders are being much more selective. If you look at today’s successful mortgage applicants it is clear that high credit scores have value when applying for a mortgage.
High Credit Scores Help Mortgage Applications
Now that it has been a full year since the beginning of the pandemic, we now have a clearer picture of what the numbers look like for mortgage applicants. There are a few clear trends in the data. First, low mortgage rates have led to a number of applications. Second, the mortgage applicant profile is much more selective. According to the Origination Insight Report produced by Ellie Mae, the average credit score for a successful mortgage applicant was 753 in February. According to Experian, a 750 credit score is considered very good. Lenders are very leery of the comparisons between today’s real estate market and the runup to 2008. As such, lenders are being much more selective in their applicants and tightening their standards. Typically, a score of 700 is the minimum for most lenders. However, the large number of mortgage applications means that lenders can pick the best applicants.
Credit Scores aren’t Everything
For those of you who want to buy a house and have less than a 750 credit score, this might be disconcerting. There is more to buying a home and qualifying for a mortgage than a credit score. While many lenders are choosing to provide mortgages to those with top rate credit, there are still plenty of options for those with scores less than 750.
Federal Housing Administration Loans (FHA Loans). FHA loans are mortgages that are backed by the Federal Housing Administration and are designed to help first time homebuyers. FHA loans only require a FICO score of 580 if you have enough for a down payment of 3.5%. If you have less than 580, they require a down payment of 10%.
VA Loans. The Department of Veterans Affairs created the VA loans program to help make it easier for members of the armed services and their spouses to buy a home. These government backed mortgages require no down payment from applicants and have no minimum credit requirement. However, while there is no official credit score requirement, typically it takes at least a credit score of 620 to get a VA loan. Either way, that is still a lot lower than a FICO score of 753.
USDA Loans. The United States Department of Agriculture created the USDA loans program to promote rural and agricultural areas. USDA loans are government backed loans that help home buyers purchase home in rural or certain suburban areas. Most lenders require USDA loan applicants to have a FICO score of 640, however, some will take less.
Final Thoughts
Today’s real estate market is competitive and that is true for today’s mortgage environment. Everyone wants to take advantage of low rates and rising equity, which means a lot of people are trying to buy a house. As such, lenders and home sellers are able to be selective with whom they give a mortgage to and what price they will take for their homes. What this means for potential mortgage applicants and home buyers is that you need options. You cannot expect to just walk into your local bank and be approved for a mortgage.
That’s why if you are thinking about buying a home it is a good idea to contact us! The team at Peoples Choice Mortgage works with hundreds of lenders to give you many different mortgage options. All lenders have different requirements and standards for mortgage applicants. Casting as wide a net as possible is always the best option when applying for a mortgage. If you have less than perfect credit, this might be necessary in order to find a lender that will work with you. However, even if you have perfect credit, having the choice between many lenders will give you the chance of getting the best rate possible. Either way, having options is a good thing.
The big takeaway is that having a high credit score is incredibly helpful when trying to buy a house and apply for a mortgage. However, it is not the only thing that matters. What matters most is working with a mortgage professional who can work with you where you are financially to find the best mortgage product for you. The dream of owning a home shouldn’t be a reality for only those with perfect credit. Owning a home is a core piece of the American dream and everyone should have access to it.
