It’s tough to get a mortgage if you have a less-then-great credit score, and some lenders will ask for more money down than others.
But a lot depends on where you live, according to a report Wednesday from the Urban Institute.
Since the housing bust in 2007, lenders have gotten much choosier about whose mortgage applications they approve. Over the last few years, credit standards have loosened a bit, but it’s still much harder to qualify than during the early-2000s boom years.
Despite strong demand for mortgages, lenders aren’t in the mood to ease credit, according to the latest quarterly survey from Fannie Mae, the government- backed lender.
“The trend toward easing of credit standards appears to be tapering off, as the vast majority of lenders, around 90 percent, reported plans to keep their credit standards about the same,” said Fannie Mae chief economist Doug Duncan.
While lending standards nationwide may remain steady this year, there’s a wide range from one metro area to another, according to an analysis of mortgage data by the Urban Institute.
Borrowers in Detroit, for example, can qualify for a home mortgage with an average FICO credit score of 728. That’s still well above the lending requirements during the housing boom, but it’s lower than the 770 score for the average borrower in San Francisco.
Though borrowers in some cities may qualify with lower credit scores, they’ll usually have to pay more to make up for the higher credit risk that lower score represents to lenders, according to Bing Bai, a researcher who helped prepare the report for the Urban Institute, a policy research group.
“For higher credit risk borrowers with lower FICO and low down payment, the lender will tend to compensate by charging a higher rate,” he said.
Part of the reason lenders are willing to approve borrowers with lower credit scores is that the city’s housing market is distressed and demand is strong from lower income borrowers, who tend to have lower credit scores, he said.
Lower-income borrowers also tend to have smaller savings to apply to a home purchase. That’s also why the average down payment is lower in Detroit than in San Francisco, said Bai.
The average loan-to-value ratio — the amount a lender is willing to approve as a share of the total value of the house — was 90 percent in Detroit, representing a 10 percent down payment.
In San Francisco, on the other extreme, the average loan-to-value ratio was 72 percent.
Higher income borrowers with bigger down payments can also avoid paying for mortgage insurance, said Bai.