It's gotten easier to obtain a mortgage loan over the past year, but credit requirements still remain high, particularly for borrowers seeking a standard conforming loan.
The average FICO credit score for mortgages approved in September was 732, down from 750 in September 2012, according to a new report from the mortgage software firm Ellie Mae. The share of mortgages approved with score below 700 rose to 32 percent of all closed loans, up from 17 percent in one year earlier.
Easier credit for FHA loans
Borrowers seeking FHA loans were more easily approved than those seeking conforming mortgages backed by Fannie Mae or Freddie Mac. The average FICO score on an approved FHA mortgage for a home purchase was 687 in September, compared to 758 on conforming loans. Lenders accepted somewhat lower credit scores for borrowers who were refinancing, with the average being 694 for mortgages refinanced through FHA, compared to 735 for conforming loans.
Overall, mortgage applications are being approved more quickly than they were last year, taking an average of 42 days to close for loans finalized in September, compared to an average of 50 days in September 2012.
Smaller down payments, more debt allowed
The size of the down payment or level of home equity required to qualify for a mortgage also declined slightly over the preceding 12 months, with the average loan-to-value ratio on closed mortgages rising to 81 percent (equal to a 19 percent down payment), up from 78 percent in September 2012.
Lenders were also willing to accept slightly higher debt loads for successful borrowers. Total housing payments, including the mortgage, on closed mortgages averaged 25 percent of borrowers' monthly income in September, up from an average of 23 percent in September 2012, while the total debt-to-income ratio - including payments for credit cards, auto loans and the like, in addition to the mortgage - rose to an average of 37 percent of monthly income on approved loans, up from 34 percent one year ago.
Rejection rate still high
Despite the signs of easing credit overall, nearly half of all mortgage applications are still denied, or at least, are not approved within 90 days. Overall, 59.6 percent of mortgage applications for home purchases were approved within 90 days as of September, while the approval rate for refinancing was only 45.2 percent.
Both of those figures are down from last year, despite the easing of overall credit standards, suggesting that more people with weaker credit or other loan qualifications are trying to obtain mortgages than before.