Credit Score Requirements are Now Stricter for Homebuyers

Recent data shows that getting the best terms for a mortgage loan needs more than just excellent credit. Today, only individuals and families with exemplary credit standing can benefit from the historically low interest rates of 30 year mortgages.

The Mortgage Bankers Association reports in the Mortgage News Daily that about half of the newly written mortgage loans during the first quarter of the current year were given to consumers with credit scores that are higher than 750.

On the contrary, only up to one-third of the new loans in 2008’s third quarter, the period before the credit crisis started, were given to consumers with greater than 750 credit scores. FICO scores, the term referring to credit cards, is the basis of most lenders in the mortgage terms that they issue to the consumers. Scores usually range from 300 to 850. In the past, having a score of at least 720 is enough to obtain the best terms for mortgage loans.

At present, consumers who are at the lower end of the credit score range have a tougher time in getting a mortgage approval, according to the Mortgage Bankers Association’s recent data. The scores that used to easily qualify for mortgage loans are now making majority of the lenders contemplate. Actually, less than one out of ten loans, about 9%, were given to aspiring homeowners with below than 650 points credit standing, reported the Mortgage News Daily.
Experts say that the changes in the requirements of the FICO score is part of the consequences caused by the credit crisis that started in 2008 and the resulting decline of the economy.

Michael Rubin, the author of Beyond Paycheck to Paycheck: A Conversation about Income, Wealth and the Steps in Between, says that there has been a significant shift in mindset which is why banks are not very willing to take the risk anymore. He further added that most banks were not very careful until the second half of the year 2008. During that time, they were very much focused on lending.

Today, banks have changed strategies by being careful with their borrowers. They are now very keen in screening their consumers because they want to make sure that they will be repaid.

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