Tight credit can be a challenge when it comes to buying a home, but it appears that many people are making it more difficult than it needs to be.
A recent survey suggests that many potential homebuyers are simply taking themselves out of the market by assuming they can't qualify for a mortgage, even though many of them say they either don't know the minimum credit score required or think it's considerably higher than it actually is.
The survey, by the retail mortgage lender loanDepot, found that half of all Americans don't know what kind of FICO credit score is required to get a mortgage. Nearly one in five said they thought it was as high as 770 or more.
In reality, one-third of all mortgages approved this past February had average FICO scores below 700, according to loanDepot. The median score for all approved mortgages that month was 714.
Credit said to be loosening
"We're well into this year's home buying season and too many potential buyers and sellers are sitting on the sidelines because they're afraid they can't qualify for a home loan before they've looked into it,"said Dave Norris, loanDepot president and COO. "While market and regulatory conditions have made it harder for many borrowers to secure a loan, consumer lending is beginning to loosen up for mortgage borrowers including those with less-than-perfect credit."
Just over half (53 percent) of potential homebuyers who don't think they could qualify for a mortgage say they think mortgage credit has gotten tighter over the past year. In reality, the approval rate for all mortgages has increased somewhat, according to figures from mortgage software firm Ellie Mae, with 55 percent of all applications currently approved, up from 49 in 2012. The average FICO score on approved mortgages has also declined, from 750 in October 2012 to the 714 figure cited above.
More than half (56 percent) of non-owners who'd like to buy a home say they aren't bothering to check into it because they don't think they would qualify. Oddly enough, nearly one-third (30 percent) of current homeowners who'd like to move in the next two years say they don't think they could obtain a mortgage to buy another home.