One of the biggest obstacles home buyers are facing is qualifying for financing, and a new report by the Federal Reserve shows exactly how big of struggle potential borrowers face. According to a new Federal Reserve report surveying banks, the report found that most banks say they are a lot less likely to issue a mortgage to borrowers with a FICO credit of 620 and a 10 percent down payment than they were in 2006 during the housing boom.
“A moderate net fraction of banks were less likely to originate loans to borrowers with a FICO score of 680, regardless of down payment size,” the report also said. “A modest net fraction of banks were less likely to originate loans to borrowers with a FICO score of 720 and a 10 percent down payment, although survey respondents indicated that they were about as likely to originate loans now as they were in 2006 if such borrowers had a down payment of 20 percent.”
So while mortgage rates continue to sink to new record lows, many home buyers are finding they can’t always qualify for the low rates.
As a recent New York Times article about the Federal Reserve’s report illustrates: “A borrower with a credit score of 720 can expect a rate of 3.70 percent on a 30-year, $300,000 fixed-rate mortgage ... while someone with a score of 620 to 639 can expect a 5.07 percent rate — or an extra $242 per monthly payment.”
Source: “How to Pump Up Your Credit Score,” The New York Times (May 17, 2012)