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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.


10. Wyoming
> Average mortgage application credit score: 716
> Average down payment: $24,661 (12th lowest)
> Median listing price: $216,000 (19th highest)
> Median household income: $56,322 (13th highest)

While it remains among the worst, Wyoming’s mortgage application credit standing has improved significantly in the past year. In 2011, the average credit score of online mortgage applicants was just 704, the sixth-lowest in the country at the time. Wyoming’s economy has been buoyed by a nationwide oil and natural gas boom, bringing jobs and wealth to the state. As of December 2012, the unemployment rate in Wyoming was just 4.9%, the fourth-lowest rate in the country. In addition, the median household income of $56,322 in 2011 was among the top third of all states and significantly better than the $50,502 across the country.

9. Texas
> Average mortgage application credit score: 715 (tied-8th lowest)
> Average down payment: $30,579 (25th lowest)
> Median listing price: $174,500 (24th lowest)
> Median household income: $49,392 (25th highest)

Texas has done better than nearly any other state in terms of weathering the tough housing market of the last several years. Home prices in the state rose by 4.6% between the second quarter of 2007 and the same quarter of 2012, the third-highest growth percentage in the country. Although the unemployment rate of 6.1% as of December 2012 was better than the 7.8% nationwide, a higher proportion of those jobs were on the lower-end of the wage scale. Texas’ household median income of $49,392 in 2011 was about $1,110 below the national median. The state also had one of the highest percentage of minimum wage jobs in the country, with 8% of jobs paying minimum wage or less compared to 5.2% across the country.

8. Tennessee
> Average mortgage application credit score: 715 (tied-8th lowest)
> Average down payment: $22,644 (4th lowest)
> Median listing price: $149,900 (15th lowest)
> Median household income: $41,693 (6th lowest)

Tennessee is a state still reeling from the housing downturn, and homes in the state are cheap for those families applying for a mortgage loan. While the median home price between December 2011 and the December 2012 remained unchanged across the country, it fell by 6.3% in Tennessee over the same time period — a larger drop than any other state on this list and one of the largest drops of all 50 states. Tennessee’s housing market is expected to struggle in the coming years as well. Between the second quarter of 2012 and the same quarter in 2017, home prices are expected to rise at an annual rate of 2.2%, the fifth-lowest expected growth rate of all states and sizably worse than the 3.3% annual growth rate expected nationwide. Tennessee’s median household income was $41,693 in 2011, the sixth-lowest rate among all states. The average mortgage down payment was just $22,644, the fourth lowest in the country.

7. Kentucky
> Average mortgage application credit score: 712
> Average down payment: $25,344 (14th lowest)
> Median listing price: $138,400 (9th lowest)
> Median household income: $41,141 (4th lowest)

Although Kentucky was spared from much of the housing crisis damage, the state struggles with low median household income and high poverty. The median income in Kentucky was just $41,141 in 2011, the fourth-lowest rate in the country. The state is very poor, with more than 19% of the population living in poverty in 2011, the sixth-highest poverty rate of all states. Like the majority of states on this list, because its residents cannot afford to take it on, Kentucky’s debt levels were lower than most. The average household credit card debt of $4,870 in January, 2013 was the seventh-lowest of all states, while the average mortgage debt in the same month was just $115,039, the sixth-lowest.

6. Alaska
> Average mortgage application credit score: 708
> Average down payment: $25,233 (13th lowest)
> Median listing price: $235,000 (11th highest)
> Median household income: $67,825 (2nd highest)

Unlike most states on this list, Alaska has higher incomes and higher levels of debt compared to most of the country. Alaska’s 2011 household median income of $67,825 was the second-highest of all states. The average credit card debt of an Alaska household as of January 2013 was $6,821, the highest of all states, while the average mortgage debt was $193,158, among the top quartile of all states. While Alaskans had among the worst credit scores for online mortgage applicants in 2012, their overall credit score in January was 654, actually the 12th-best in the country.

5. Oklahoma
> Average mortgage application credit score: 704
> Average down payment: $19,752 (3rd lowest)
> Median listing price: $137,500 (8th lowest)
> Median household income: $43,225 (10th lowest)

The housing market in Oklahoma didn’t get slammed like most other states. Between the second quarter of 2007 and the second quarter of 2012, home prices rose 3%, compared to a fall of 27.6% across the U.S. However, homes remain relatively inexpensive in the state. The median list price in December 2012 was just $137,500, the eighth-lowest of all states. Oklahoma residents also had low levels of debt. The average household credit card debt as of January, 2013 was $4,861, the fifth-lowest of all states. Meanwhile, the average mortgage debt was $110,096, lower than all but three other states.

4. West Virginia
> Average mortgage application credit score: 702 (tied-3rd lowest)
> Average down payment: $24,437 (10th lowest)
> Median listing price: $138,900 (10th lowest)
> Median household income: $38,482 (2nd lowest)

The average credit score for online mortgage applicants in West Virginia of 702 in 2012 was up five points from the year prior, helping to move West Virginia from third-worst in 2011 to fourth-worst last year. The 2011 median income in West Virginia was just $38,482, lower than any other state except for Mississippi. Like many states on this list, West Virginia had very low levels of debt. The average credit card debt of West Virginia households was $4,823, the fourth-lowest amount of all states. The average mortgage debt as of January was just $105,041, lower than any state except for Mississippi.

3. Louisiana
> Average mortgage application credit score: 702 (tied-3rd lowest)
> Average down payment: $29,118 (23rd lowest)
> Median listing price: $159,900 (22nd lowest)
> Median household income: $41,734 (7th lowest)

Louisiana’s household median income in 2011 of $41,734 was the seventh-lowest in the country and nearly $9,000 below the U.S. median. Meanwhile, more than 20% of the population lived in poverty in 2011, the third-highest rate in the country. However, the unemployment rate of just 5.5% in December 2012 was lower than most states and more than a percentage point and a half better than the year before. Louisiana’s online mortgage applicants had significantly better credit scores than the credit scores of the state population as a whole. The average credit score of all residents in Louisiana was just 625, also the third-lowest of all states.

2. Arkansas
> Average mortgage application credit score: 693
> Average down payment: $17,391 (the lowest)
> Median listing price: $143,500 (13th lowest)
> Median household income: $38,758 (3rd lowest)

Arkansas was one of just two states where the average credit score of online mortgage applicants was below 700. The average down payment for a home in Arkansas was just $17,391, the smallest down payment of all states. The housing market has improved recently, with home prices climbing 7.2% in the state between the second-quarter of 2011 and the same quarter in 2012. This was the third-largest growth rate in the entire U.S. The median listed home price in the state was just $143,500 in December of 2012, on the lower end of all states.

1. Mississippi
> Average mortgage application credit score: 689
> Average down payment: $24,253 (9th lowest)
> Median listing price: $141,500 (12th lowest)
> Median household income: $36,919 (the lowest)

Mississippi residents applying for mortgages online had the lowest credit score of all states, with an average score of just 689. The median list price of homes in December 2012 was $141,500, among the bottom quartile of all states. In 2012, the average down payment was $24,253, the ninth-lowest down payments in the country. But the low prices and down payments make sense given that Mississippi is the poorest state in the country. In 2011, the state’s household median income of $36,919 and poverty rate of 22.6% were both the worst in the country. The average mortgage debt in January, 2013 was $104,613, while the average credit card debt was just $4,217, both the lowest of all 50 states.

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