States Where People Can't Get a Mortgage

Although the U.S. housing market is improving, lending standards remain tight. Banks have become extremely vigilant in their lending practices, requiring a more stable income, enough money for a sizable down payment and a better credit score.

The average credit score of mortgage applicants ranges considerably among the states. In California, the average credit score of an online mortgage applicant in 2012 was 755, while in Mississippi it was 689. Based on online mortgage application data from MortgageMarvel, a resource for mortgage quotes, 24/7 Wall St. analyzed the 10 states with the lowest credit scores for mortgages.

In states with lower average credit scores, the median home prices and down payments tend to be lower than most of the country. The median list price for December 2012 in eight of the 10 states on this list was lower than the national median list price of $179,900. Similarly, the average down payments of mortgages in all 10 states on this list were all lower than the average national down payment that month of $38,399.

Moreover, the states where mortgage applicants had lower credit scores also tend to have lower median household incomes. All but two of the states on this list — Alaska and Wyoming — had 2011 median households below the national median of $50,502. In fact, seven of the 10 states on the list had among the 10 lowest median incomes of all states.

Credit scores of online mortgage applicants tend to be in line with the average credit score of all mortgage applicants, MortgageMarvel Chief Operating Officer Rick Allen told 24/7 Wall St. Generally, mortgage applicants tend to have much higher credit scores than everyone in the state. For instance, online mortgage applicants in Mississippi had an average credit score of 689, the lowest of all states. However, this was significantly better than the 618 average credit score of everyone in the state.

“What that tells me is that consumers self-select at some level to apply for a mortgage,” Allen said. “Many of those with substandard credit know they will not get approved, so they will not go through the pain of the process and the expense of the process to get a mortgage.”

Perhaps surprisingly, the states where mortgage applicants had lower credit scores also had lower debt loads. Five of the 10 states had among the 10 lowest average mortgage debt. Similarly, seven of the 10 states with the lowest average credit scores had among the 10 lowest average credit card debt. Allen pointed out that people with higher incomes can take on more debt, and given that the states on this list have low incomes, residents cannot afford to take out as much debt.

The states with the lowest online credit scores have mostly avoided the worst of the housing market crash. These states’ housing markets fared better than the national housing market between the second quarter of 2007 and the second quarter of 2012, where home prices fell 27.6% across the country.

Six of the 10 states on this list had among the 10 best housing markets during that period of time. The reason, explained Allen, is that in hard-hit states such as California, mostly those with pristine credit, tend to apply for mortgages, while this isn’t the case in states that fared better where also the creditworthiness of applicants tends to be broader.

MortgageMarvel also provided data for the average mortgage down payments for 2012. We also considered a state’s median list price for December 2012, which came from Zillow. To reflect the state’s housing market, we looked at home price changes and projections, with data provided by Fiserv. In addition, we reviewed median income and poverty rates for 2011 from the U.S. Census Bureau, along with the most recent unemployment rates from the Bureau of Labor Statistics. Average credit score, mortgage debt and credit card debt for each state was provided by Credit Karma.

These are the states where people can’t get a mortgage.

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