Over 30% of US Consumers Do Not Qualify for Home Loans
Since the subprime home loan market crashed in 2006, lenders and banks have been tightening loan guidelines for refinance a purchase mortgages.
- Credit scores need to be higher
- Income needs to be greater
- More equity is needed to refinance
- More money is required for down-payments
Government loan products like the FHA and VA loan have emerged as the most flexible mortgage for borrowers who are struggling to qualify for a refinance loan. The FHA and VA streamline refinance have helped a lot of American homeowners refinance in a pinch. The FHA streamline does not allow borrowers to finance closing costs in the loan, so borrowers typically have to come out of pocket for lending costs like appraisal, title and escrow.
According to research from Deutsche Bank, the number of consumers in the United States with credit scores below 600 has increased to 26 percent from only 15 percent prior to the start of the recession. This increase in bad credit scores could be attributed to late mortgage payments, credit card debt settlement or a bankruptcy. Examining credit data further reveals that 9 percent of all U.S. consumers have a credit score in the 600-649 range. Today most conventional and jumbo mortgage loan products require credit scores of at least 680.
Based on current loan guidelines and the credit score requirements for a home loan approval, any applicant with a score below 600 is almost certain to be turned down by a banking institution. Borrowers in the 600-649 range are also considered “weak” candidates with a high turn down rate, especially if the credit score is below 620.
Based on the total number of Americans with a credit score of 649 or lower, up to 35 percent of all Americans are effectively locked out of the refinance or purchase mortgage market for the foreseeable future. With foreclosures and default rates constantly increasing, it is conceivable that credit standards could be tightened even further by lending institutions.
