Monday, May 27, 2013

Noteworthy Changes in Mortgage Standards

Higher credit scores needed for mortgages
Poorly documented mortgages were key players in the housing crash of 2006 and 2007. Many of those mortgages should not have been approved and led to four million foreclosures, devastating families and lowering value by over 50 percent in some communities. Since then, the loaning protocols have seen drastically increasing standards for credit, abilities to repay and better documentation. The Equifax Finance Blog explores how this can affect you in the new article, "Buying a Home? Mortgage Standards You’ll Need to Consider."

These changes threw the market for a loop - many who could once qualify for a mortgage could no longer do so. Approximately 40 percent of residential loans went to homebuyers with credit scores over 740. According to Economists at the National Association of Realtors, 500,000 to 700,000 home sales could be made if credit conditions would return to the prior levels. These statistics serve as reason for many who believe the new standards have been set too high.


If you are seeking to purchase a mortgage or refinance a home, there are various standards you must first meet. An average FICO score is resting at 745, a loan to value ratio (LTV) of 80 percent and a debt to income ratio (DTI) of 35 percent with mortgage and 23 percent with prospect. Also, the QRM rule will stress that lenders make loans to borrowers who put down more (10 percent plus), and for those who put down less to pay higher mortgage interest. The changes being made have led mortgage approval rates to rise 20 percent, and causing homebuyers to be doing better.


To learn more about mortgage standards and credit ratings, visit the Equifax Finance Blog.

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