Where Do Credit Scores Come From?
Mortgage lenders pull credit scores from the three major credit bureaus: Transunion, Equifax, and Experian. Lenders will correlate these individual scores and use the median of the three credit scores for a buyer’s application.
Often, texas buyers who think that they have a high credit score are frustrated to see that the score their lender is using is lower than the score they’re used to seeing when they check their own credit. The consumer credit scores (provided for free by most credit card companies or companies like Credit Karma) are about 20 to 30 points higher than the score mortgage lenders pull.
Different industries use different scoring models, which is why a buyer’s score can vary. For example, there are different scoring models for consumer credit cards, mortgage loans, and car loans. Typically, consumer models have the least strict criteria while mortgage lending models have some of the most stringent.
For local buyers, the average credit score in Texas is 656, according to a Experian report.
Average FICO Scores Among Homebuyers
Every month, Ellie Mae generates an “Origination Insight Report” that provides a detailed look at mortgage trends nationwide.
In January 2020, Ellie Mae reported the average FICO score distribution for purchases, refinances, conventional loans, and FHA loans. Ellie Mae found:
- 71% of all closed loans had FICO scores over 700
- 74% of all purchase loans had FICO scores over 700
- 84% of all refinances had FICO scores over 700
As of January 2020, the average FICO score of all closed loans increased 3 points from December’s report. The January average FICO score of all borrowers who had closed loans was 738.
FHA Loans and Lower Credit Scores
There are loan options that work for buyers who don’t have credit scores over 700. FHA financing is a great option for these buyers. In January 2020, Ellie Mae reported that the average credit score for FHA purchase loans was 679 with a loan-to-value (LTV) ratio average of 95.
In comparison to the closed conventional loans statistics (738 credit score and 80 LTV), FHA loans work for buyers who are just shy of a 700 credit score. FHA financing also gives buyers the opportunity to purchase with a higher LTV with their mortgage insurance program.
Consider the Big Picture
There are a lot of factors that play a role in qualifying a loan and whether that loan successfully closes. Local lenders in Texas, like JVM, consider the “big picture” of the buyer’s application; credit scores are just one part that is examined.
If you are looking to purchase a home in Texas and have questions about your credit, the best way to find out what you qualify for and what loan program is right for you is to talk to a local lender.
You can contact us here, or at (855) 855-4491 or [email protected].
