October 17th, 2013
After the U.S. government shut down on Oct. 1, many economists were concerned it would negatively affect the housing market, which has recently been on a strong path to recovery. Fortunately, the shutdown is now over, and it seems the nation’s housing market will remain mostly unscathed. In fact, recent data from Ellie Mae, which provides mortgage lenders with loan origination systems, revealed that banks are starting to ease their requirements for a mortgage, making it easier for more Americans to get approved.
According to MarketWatch, Ellie Mae’s report found that the average credit score of borrowers who received a mortgage in September was 732. This is a large decline compared to a year ago, when the average score was 750. Furthermore, it’s the lowest average credit score Ellie Mae has seen since it started tracking this data in August 2011.
This is great news for potential homebuyers, particularly ones who may have less-than-perfect credit. By easing credit standards, banks are opening up the opportunity of homeownership to many more people across the country. Of course, getting a mortgage still requires meeting certain conditions, but it is definitely easier now than a year ago.
What easier lending standards say about the housing market
The shift in lending requirements suggests a positive outlook for the U.S. economy, since banks appear to have more confidence. In comparison, according to MarketWatch, during the housing crisis in 2008, most lenders became more hesitant about giving out mortgages to people with lower credit scores because foreclosures were skyrocketing.
With the current health of the housing market, banks now see less risk in approving mortgages.
“The share of purchase loans continued to grow in September 2013, climbing 1 percent to 58 percent of all loans even in the face of higher interest rates and seasonality,” said Jonathan Corr, president and chief operating officer of Ellie Mae. “The credit standards also continued to ease in September with average FICO scores for closed loans dropping to 732 compared to 734 in August.”
Other opportunities for borrowers with less-than-perfect credit
The recent report from Ellie Mae also suggested the most ideal mortgage options for people with credit scores that are less than perfect. For instance, FHA loans, which are backed by the Federal Housing Administration, require smaller down payments and accept lower credit scores from applicants. Because the FHA is a government entity, people were concerned its loan offerings would suffer during the shutdown, but it is functioning as usual.