Banks Relaxing Credit Score Standards

As interest rates continue to increase in 2014, mortgage lenders have begun to relax their credit score requirements for borrowers. In fact, the average credit score of an approved borrower fell by 21 points from 748 to 727 over the last year.

That same report also showed that the average debt to income ratio on approved home purchases increased from 34% to 39%. And the debt to income ratio on refinances increased form 33% to 41% from a year ago.

The strict lending practices from 2013 have shown to be paying off for lenders as mortgages originated in 2013 have been performing better than any year on record. This fact, in and of itself, proves that lending practices need to be loosened.

With lenders looking for borrowers that have excellent credit, a high income, and a large down payment, many consumers are being left behind and forced to rent through one of the best home buying markets in the last 50 years.

But, borrowers can still qualify for an FHA backed mortgage which only requires a 3.5% down payment.

The average credit score for an approved FHA home loan actually decreased from 699 to 690 over the last year. While the average credit score of a denied FHA home loan increased from 658 to 670.

The newly relaxed standards show that lenders are more willing to lend to borrowers with lower credit scores, but not much lower than before.