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Mortgage Credit Scores Decrease – Still Remain High

decreaseYears ago mortgage lenders developed many kinds of “non-traditional” mortgage products which were designed to help expand the pool of people who could qualify for a mortgage. But in the years following the 2008-2010 stock market collapse, the rules for obtaining a mortgage were rewritten. In particular, people who once could qualify for a mortgage based on and average credit score – 680 – have found that their abilities to qualify for a mortgage have significantly declined.

Mortgage rates remain at historic lows, signaling a great opportunity for those interested in purchasing or refinancing a home. But credit requirements for many mortgages have become very difficult to meet, even as these requirements have eased up some from previous years. For example, the average credit score of those applying for a refinance in 2013 was 729, down from 763 in 2012. Whereas a score of 729 used to be sufficient to get a borrower a mortgage with little or no documentation, now it may not be enough to get a traditional mortgage at all. This is because this score only represents the average score of applicants, not of approvals. Though there are programs available for people who have credit scores below this threshold, the high 700s is the “new normal” for obtaining a conventional mortgage loan from a big bank.

Having good credit is incredibly important, now more than ever. Especially for those looking to purchase or refinance a home, there really is no substitute for the positive effects of having a good credit profile. With excellent credit, not only are you more likely to be approved for the loan you desire, but you are also more likely to obtain some of the lowest interest rates in history while doing so.

For more from WSJ Blogs, click here.

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