Well, mortgage rates are still rock bottom. In fact, the 15-year fixed-rate mortgage actually hit a new all-time low this week, falling to 3.11%, per Freddie Mac.
So who’s actually benefiting? Well, a new loan origination report from Ellie Mae breaks it all down for us to see what’s working and what isn’t.
The data looks at loan applications from February, and it’s rather robust, with about 20% of all mortgage apps in the United States flowing through Ellie Mae’s Encompass360 mortgage management software.
Average Fico Score 750
I always highlight credit score as being one of the most important aspects of qualifying for a mortgage.
Without a solid credit score, it doesn’t really matter if you have $1 million in liquid assets and a job that pays you $200,000 a year.
[What credit score is needed for a mortgage?]
Banks and mortgage lenders still want to know that you will meet your obligations on time every month. Heck, even if they do grant you a mortgage, a low credit score will mean a higher-than-market mortgage rate. And who wants that?
That said, the average Fico score for all funded loans in February was 750, which is up from 740 six months ago.
Meanwhile, the average Fico score for denied loans was 699, which is still pretty high in the grand scheme of things.
In other words, lenders expectations keep on rising, so if you want the low mortgage rates, you need to clean up your act.
Average LTV 76%
Meanwhile, the average loan-to-value ratio on closed loans was 76%, which means most homeowners had nearly 25% equity in their homes.
It was also down from the 79% average seen back in August.
Sure, there are programs for borrowers who are underwater on their mortgage, such as HARP phase II, but most loans are still going to those with adequate home equity.
And remember, the lower your LTV, the better your chances or securing a low mortgage rate, and approval for that matter.
For conventional loan purchases, the average buyer put down 22% and had a 764 Fico score. Wow. Talk about no-nonsense lending.
DTI Ratios of 23/34
Ellie Mae also noted that the average front-end debt-to-income ratio for loans that funded was 23%, meaning less than a quarter of gross monthly income went toward the monthly housing payment.
And the mortgage plus all other monthly liabilities only accounted for 34% of gross income for approved borrowers.
For comparison sake, those who got denied had ratios of 28/44, which meant homeowners were spending nearly a third of income on their housing payment.
Bring It All Together
Overall, 48% of all loan applications eventually closed, and there was a higher percentage of purchase closings (60%) than refinances (42%)
[7 reasons why you can’t refinance your mortgage.]
Still, the refinance share of applications (67%) dominated purchases (33%), but clearly not all the refis are working out.
Layered risk comes to mind, that is, the combination of a lower-than-average credit score, coupled with higher-than-average DTI and LTV ratios.
This is essentially what mortgage underwriters look for, so it’s imperative that you don’t present too much default-risk when applying for a mortgage.
The average loan that did eventually fund took 44 days, from application to closing.
In summary, step up your game folks. Lenders want quality these days…