Credit scores have increased among mortgage-approved borrowers. That is what it means for you.
Americans took out a record number of mortgage loans in 2020 New York Federal Reserve More mortgages were taken out last year than ever before. In the fourth quarter of 2020 alone, a whopping $ 1.2 trillion in new home loans were made.
It is understandable that so many people have taken out Mortgage loan last year. Mortgage rates hit repeatedly new record lows. Large numbers of Americans flocked to mortgage lenders for refinancing or borrowing to buy a home at an extremely affordable rate. But some people failed to take advantage of the unprecedented opportunity.
In fact, the Federal Reserve data shows that it benefited mostly Americans with excellent credit scores. The median credit score among mortgage borrowers has steadily risen. And it hit a new record high of 786 in the fourth quarter of 2020. This is significantly higher than that Overall average credit rating in the US, which The Ascent 2019 research put at 706.
Why Are Credit Scores So High Among New Mortgage Borrowers?
There are a few main reasons why the average credit scores among new mortgage borrowers reached record highs.
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One explanation is that many of the new mortgage loans were actually Refinancing Loans, no loans to buy a new home. That said, the people who take out loans were already homeowners looking to cut their interest rates. And homeowners tend to have much higher credit scores than those who do not already own a property. Research into the rise found that 73% of homeowners have scores above 760, compared to just 27% of renters.
Mortgage lenders also imposed stricter qualification standards during the COVID-19 pandemic due to ongoing economic uncertainty. This meant that people needed higher scores to get approved for home loans.
What does this mean to you when you have a low credit score?
If your credit score is not 786 or higher, you may be concerned about your own ability to get approved for a home loan.
The most important thing, however, is that this is just an average. Some people qualify for home loans with much lower scores. You should always try to improve your credit as much as possible before applying for a home loan. This way, you can have a wide range of lenders to choose from and borrow money at an affordable rate. But you don’t have to give up your homeownership dreams if you can’t improve your credit score materially in a reasonable time frame.
In fact, there are several ways you can buy a home with bad credit. That includes government-backed loans like this one insured by the FHA as well as conventional loans for borrowers with incomplete credit. You need to consider these loan options carefully as they are more expensive. But many of them are still reasonable. And if you’re willing to pay a premium to buy a home before your credit improves, you should be able to find one that will work for you.
If you go for a loan that costs more because it has simpler qualification requirements, your credit still matters. It pays to keep working to improve it. Your loan can help with this as you make payments on time. Over time, you can potentially earn the kind of excellent credit that will make you a well qualified borrower. In this case, you could possibly refinance a loan in the future that offers better terms.