The report also highlighted important trends in the mortgage market, such as low interest rates and an increase in credit availability for those with better credit scores.
The Mortgage Bankers Association’s report showed that total mortgage origination volume hit a peak of nearly $1.7 trillion in 2020, surpassing the previous high reached in 2005. However, much of this growth was driven by refinancing as homeowners look to take advantage of historically low interest rates. Refinancing accounted for 62% of total mortgage volume in 2020, with home purchases accounting for the remaining 38%.
The MBA report also found that the average FICO score of borrowers hitting a new high last year as well. In 2020, the average FICO score for those taking out a home purchase mortgage loan was 755, up from 743 in 2019. Interestingly, this increase was primarily driven by borrowers with higher FICO scores of 750 or above. Borrowers with lower credit scores (below 700) were less likely to take out a mortgage in 2020, suggesting that lenders have become more conservative when it comes to approving borrowers.
The report also highlighted lenders’ increasing use of other factors when determining credit worthiness. For instance, lenders looked closely at borrower income and debt-to-income ratios. This allowed borrowers with more limited credit histories to qualify for mortgages, even if their credit scores were below average.
Overall, the MBA’s Home Purchase Mortgage Lending report demonstrates that home purchase lending is at its highest level since 2007. While this is good news for prospective homebuyers, it is important to note that lenders are becoming increasingly selective when it comes to evaluating credit worthiness. Lenders are looking for borrowers with high credit scores, sufficient income levels, and low debt-to-income ratios if they are to be approved for a mortgage loan. Therefore, prospective home buyers should ensure they have good credit, solid income, and low overall debt if they are to successfully secure a home loan.
This article was contributed on Nov 04, 2023
