Loans Easier to Get pt. 2

Following part one of this blog, and looking further at the same Origin Insight Report from Ellie Mae, it can be seen that the amount borrowers are required to put on the table for a down payment is declining slightly along with the allowable average credit score.

According to the report, the average percentage amount of the total loan necessary for a down payment fell slightly from 22 percent to 19 percent.   Jonathan Corr, president of Ellie Mae, noted that after the recent tighter lending standards most lenders “weren’t even doing loans with less than a 20 percent down payment.”  A 20 percent down payment creates an 80 percent loan-to-value ratio (LTV).

By example: For a home costing $300,000 the borrower would have to come up with a down payment of $60,000 with an 80 percent LTV that would require a 20 percent down payment.  The above noted dip in the average allowable down payment from 22 percent to 19 percent doesn’t seem like much, being only a 3 percent difference.

However, on a $300,000 home, that 3 percent difference amounts to $9,000 in the amount the borrower would need to front for a down payment.  For many, that $9,000 can be the difference in qualifying for the loan or not.  Corr notes positively that this drop to 19 percent is an average; so many borrowers may be able to get a loan with a down payment even lower than the 19 percent.

Corr also notes that the report shows that debt-to income (DTI) ratios have been allowed to rise, also helping more borrowers qualify for a loan.  He says the average percent of DTI is going up, and doing so for a variety of reasons, which include a strengthening economy and stronger housing market.  He adds that, “lenders are becoming more lenient about how much debt they see as acceptable for borrowers to take on.”

Previously DTIs, front-end and back-end, were about 23 percent and 34 percent respectively, but now have been allowed to rise upwards to 25 percent and 37 percent.  “So while it’s not massive, you are seeing some loosening, which is a positive sign for borrowers,” says Corr.