Mortgage loans originated in the third quarter of 2016 are among the highest quality home-loans made since 2001. The data were released Tuesday morning by property information and research firm CoreLogic in the company’s first quarterly report dedicated to its housing credit index (HCI).
The HCI measures credit risk on six metrics: credit score; debt-to-income ratio; loan-to-value ratio; documentation level (full documentation of a borrower’s economic conditions or incomplete levels of documentation, including no documentation); occupancy (owner-occupied primary residence, second home or non-owner-occupied investment); and property type (whether property is a condominium or co-op). A rising HCI indicates increased credit risk, while a falling index score means reduced credit risk.
The average credit score for home buyers rose five points year over year in the third quarter, from 739 to 743. In the quarter, the share of buyers with credit scores under 640 had dropped by more than 75% compared with 2001.
Frank Nothaft, chief economist at CoreLogic, said:
Mortgage originations over the past 15 years have exhibited a huge swing in credit tolerance, as shown in our Housing Credit Index. … Using 2001 originations as a base year, the HCI shows the significant loosening of credit running up to 2006. This was followed by a dramatic tightening of credit in response to the real estate crash and a decline in high-credit-risk applicants beginning with the Great Recession. While low downpayment and high payment-to-income products are available today, borrowers generally need good credit scores to qualify. This may be a factor that has led to the drop-off in applications from those with lower credit scores during the last few years.
Debt-to-income ratios dropped from 35.7% in the third quarter of 2015 to 35.4% this year, and loan-to-value ratios declined from 86.8% to 85.6%.
The downside, according to Nothaft, is that many potential buyers seem to believe that they cannot get a mortgage. The majority of applications are coming from relatively high-quality, low-risk applicants.
Essential Tips for Investing: Sponsored
A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Editors' Picks
