(FreeRateUpdate.com) – As the economic crisis continues to slowly heal its wounds, the reports of the effects on our society is in the media every day. The housing market and mortgage market seem to be the hardest hit in this down turn that appears to be dragging on for months. While this solemn state of affairs engulfs each one of us into a state of depression, there is good news on the forefront. According to these new statistics, there are a large number of borrowers that still have acceptable credits scores. In fact, 71% of borrowers do qualify for a purchase loan.
As reported by Zillow, according to Fair Isaac Corporation, the creator of the FICO score, 29.3% of today’s borrowers have a credit score below 620 which makes them unable to borrower money for a purchase mortgage. Anyone with a credit score below 620 is very unlikely to be able to obtain financing. Even if this group of people had a large down payment, they would most likely not be able to obtain a mortgage. On the other hand, the good news is that 47% of today’s borrowers have scores above 720 and a total of 71% are able to borrow. Higher credit scores are awarded with the best interest rates available.
Due to tight credit standards and stricter underwriting guidelines, many borrowers today are being turned away from obtaining a mortgage. Years ago, these same borrowers were turning to sub-prime mortgage products as their only financing option. At that time, many of these same borrowers would have qualified for FHA loans but opted for sub-prime instead. In fact, prior to the introduction of sub-prime, there were only FHA loans available to these borrowers. Now, with FHAs exposure in the mortgage market so pronounced, they, too, are further tightening their lending guidelines making it difficult for this 29.3% group of people to obtain a mortgage.
More people have been choosing to clean up their credit and pay off credit cards as credit card interest rates have increased. This is a positive move in an effort to increase their credit scores and make them more eligible to buy a home. Although people have been cutting back other spending while doing this and growth of the economy has suffered, they are becoming responsible spenders. As this movement continues, the percentage of borrowers that are credit worthy and able to buy should increase over time. Just as it took many years for this turmoil to occur, it will take time for the benefits of these actions to be seen.
Although the number of borrowers that are unable to obtain a mortgage may seem high, earlier studies show that nearly 20% of the population had FICO scores below 620 in 2002 when the unemployment rate averaged around 5.7%. Considering the fact that we have just gone through the Great Recession followed by a very slow economic recovery and a very high unemployment rate, this new percentage of 29.3% is not so frightening. Reflecting on the fact that 71% of borrowers do qualify for a new home loan, things may just improve when borrowers realize that they are in this category and able to take advantage of historically low interest rates.