Mortgage Delinquency Rate is High with Lower Credit Score Borrowers

by San Antonio Attorney

In today’s market, it is almost unlikely to get a traditional mortgage if your credit score is lower than 620, or an FHA loan with a score lower than 580. But it was not like this in the past.

Numerous overdue loans were made with minimal down payment, with virtually no paperwork, and to borrowers whose credit scores were considered as unacceptable these days. Anyone could be eligible for a mortgage, irrespective of income, credit, or money in the bank.

For an amusing (and to some degree alarming) recollection of the past, there was an ad from Chase Bank in 2005 offering home loans that only requires the borrower’s signature. They are part of the loans that constitute the increased rate of delinquency, even years after the housing market bubble popped.

It is therefore worth looking out for any signs of the trend coming back towards home loans for borrowers with low credit.

Wells Fargo, for example, has reduced its credit score requirement for conventional loans from 660 to 620, and for FHA loans from 640 to 600.

Even so, to be able to get a loan with a low credit score, a minimum down payment of 20% is required. The interest rate is also higher and the borrower should have a very good history of employment.

The FHFA’s report divides borrowers into two credit groups: those whose credit score was at least 660, and those who acquired their mortgage with credit scores below 660.

Around 90% of the borrowers recently belong to the higher credit score group, and of that category only 2.6% of loans are behind their payments, and below 1.5% are very delinquent (more than three months).

However, out of the three million loans whose borrowers had low credit scores, about 14.4% are delinquent, with7% very delinquent.

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