New mortgages for purchasing homes are churning out at a fast clip, with the borrowers getting those loans having some of the highest credit scores ever. Because credit is favoring a smaller segment of borrowers, the result is that loan performance is arguably the best in history.
High-credit borrowers, those with FICO scores above 700, are almost entirely behind the surge in purchase applications. The average credit score for purchase mortgages hit a record high of about 755. The median credit score in the U.S. is about 720 according to FICO, and the average score is 695.
FICO is the most commonly used scoring model to determine credit risk. It was created by Fair Isaac Corp. “Scores are calculated based solely on information in consumer credit reports maintained at the credit reporting agencies,” according to FICO. Scores range from a low of 300 to a high of 850. The higher the score, the lower the risk.
While there are programs for borrowers with lower credit scores, like the government-insured FHA loan program, those borrowers are required to pay mortgage insurance; they also may not get the lowest interest rate available on their loans.
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