The Average Credit Score For Approved Mortgages Is Declining

average-fico-approved-mort

Before the recession, average FICO scores for approved mortgages averaged around 720. 720 is actually the cut-off point between “Good” and “Excellent” credit. Given the housing market collapsed nationwide anyway, one shouldn’t be too impressed with a 720 credit score. A 720 credit score should be viewed as average, at least from this loan officer’s perspective.

After the housing bubble burst, the average score for approved mortgage applicants shot up to 769 from 2009 until the end of 2012. A 769 credit score beats out 80% of all other credit scores out of 850. In other words, banks weren’t lending to hardly anybody. The upside is that the probability of a similar type of housing crash in the future has declined.

The “good news” for borrowers is that according to Fannie Mae the average credit score of an approved mortgage applicant is now down to 741 as of the first quarter of 2014. I say “good news” because it’s brutal for even good income earners to get a mortgage nowadays. Many renters I know have been shut out of the housing market simply because they can’t get a loan.

Although credit standards are loosening, a credit score of 741 is still a pretty high hurdle to overcome given you still need a good income and a healthy balance sheet to cover borrowing ratios. But at the margin, a lower credit score hurdle should allow more people to borrow money to further support the housing market recovery. I still see little signs of sub-prime mortgages or negative amortization mortgages returning. But one thing we should be concerned with is the latest Federal Housing Administration initiative to get Boomerang Buyers back in.

Why It’s So Hard To Get A Mortgage According To A Loan Officer

Dream KitchenI shared with you my most recent painful journey in qualifying for a mortgage. It’s not over yet as the underwriter now wants a signed copy from my CPA on his company letterhead of all my company’s financials. My CPA said he charges $3,800 for a thorough audit, so I told him to go jump in a lake. Instead, I sent off my company’s financials with my signature and told my bank to take it or leave it. I think they’ll take it because I’ve fulfilled every single item on their 21 point check list. We shall see.

My mortgage pain post was shared around the web and I ended up having a good dialogue with a loan officer. He shared with me some frank insights as to why it’s so hard to get a mortgage nowadays.

If you are easily offended, I suggest skipping this post. But if you can handle the truth, and if you want to gain some perspective from someone who controls millions of dollars in loans to satisfy property buyer’s wishes, then read on.¬†

How Difficult Is It To Get A Mortgage Nowadays? Brutally Difficult And Extremely Painful

Hidden Mosaic Steps, San FranciscoOne of the reasons why I don’t think the next housing collapse will be as long and painful is because getting a mortgage since 2008 has become brutally difficult. There was a time when no-documentation mortgages, negative amortization mortgages, and NINJA loans (no income, no job, no asset) were common place. Those loans are equivalent to when passengers could smoke on airplanes so long as they were in a “smoking row.” Unbelievable.

I documented back in 2012 that it took 100 days to refinance my mortgage. It was a painful experience given just two years before it only took 45 days to refinance. I was anxious the refinance wouldn’t go through because once you don’t have any W2 income, you are DEAD TO BANKS. I was determined to save an extra $300+ in mortgage interest a month if it killed me. Definitely refinance your mortgage BEFORE you quit or engineer your layoff folks.

Now that we’re in the summer of 2014 and the economy seems to be much better, you’d think that getting a loan would be a little easier. Nope. Getting a mortgage is as brutal as ever. Let me share my latest journey.

No Financing Contingency Offer: A Way To Pay All Cash For A Property Without Having The Cash

Park ViewIt’s official. I lost my first overbid in this crazy San Francisco property market.

The property was a single family house, 3/3, on a small lot, overlooking a park asking $1.299 million (picture). I’ve known the listing agent for a while and she mentioned that $1.35 million would get it done, but I was thinking $1.2 million instead. She had two other over-asking offers, but I couldn’t muster up the courage to bid more than $1.315 million.

It wasn’t a big loss because the property didn’t tug at my heart. I figure, if I’m going to be spending more than a million bucks on a property, I better be excited, or else why bother. Yes, property prices are crazy out here in San Francisco, but this price point is actually relatively good value.

I’ve been agonizing over paying down my existing rental property mortgages or leveraging up to buy more property. The jury is still out, but I’m willing to at least prospect around to see if there’s anything I like before making a decision. Besides, I figure this latest house hunting experience will provide good educational content for other folks looking to buy in a hot property market.

A Refinance Opportunity Has Emerged Now That Mortgage Rates Have Declined

5 Year History Of The Treasury Yields

The last time I refinanced my oldest rental property was in the Fall of 2011 (see red oval). I locked in a 3.375% rate for a 5/1 conforming ARM, which means I have until 2016 before my interest rate adjusts upwards or downwards. With a payment of $1,300 a month – $550 of which goes to principal -I’m not too worried about rising rates because the property generates $3,800 a month in rent.

I had the opportunity to refinance again in May 2012, but felt it was too much of a hassle to save $1,070 in interest a year so I didn’t. In retrospect, I should have just gone through the estimated three month long refinance process because the savings would be $1,070 X 5 years = $5,350 and I would have a year longer fixed interest period. Every dollar counts when you are no longer working.

WHY INTEREST RATES ARE MOVING