Although credit standards are easing among lenders [1], they still take into account how high or low a borrower's credit score is to determine if they will get approved for a mortgage loan, but there is also a demographic factor that could stand in the way of homeownership.
A borrower's credit score could be adversely affected by gender, according to a study from CreditSesame.com [2]. Typically, men have an average credit score of 630 out of 850, while women have an average score of 621. But here's where it gets interesting: Men have higher credit scores than women even though they have higher debt and credit card balances. These factors could be mean that men are able to get a mortgage loan easier than women.
The report explains that men tend to have higher wages compared to women. In the study, 23 percent of men reported earning $75,000 or more annually, while only 18 percent of women said that they earn this amount.
"While income does not play a direct role in credit scoring formulas, it enables consumers to mange their credit well—which, in turn, leads to higher credit scores," the report stated.
A recent survey from the Federal Reserve [3] showed that credit standards are easing among lenders [1], some are questioning if the easing gone too far?
Although lenders are being selective of whom they lend to in terms of credit score, overall, mortgage lending standards have eased every quarter over the last two years.
According to the Fed survey, credit standards have eased moderately on some categories of residential mortgage loans, while demand for these loans weakened. During the fourth quarter of 2015, 11 of the 63 banks surveyed noted that credit standards on GSE-eligible loans had eased somewhat, while two banks said lending was tight somewhat. Government residential mortgages eased somewhat for four of the 59 banks questioned and tightened for four banks.
Matthew Pointon, Property Economist at Capital Economics [4] questioned whether or not the eased credit standards could be the early signs of another financial crisis [5]. He ultimately determined that "fears that we are embarking on a repeat of the dangerous cut in standards that contributed to the financial crisis look premature."
"Given how tight mortgage lending standards were at the height of the financial crisis it is no surprise–and a welcome development–that banks have been gradually easing standards for the past two years," Pointon noted. "We expect that will continue, helping mortgage lending to grow at a steady pace over the next couple of years. But there are few signs that lending criteria are returning to the ultra-loose conditions which contributed to the mid-2000s boom. Bankers’ memories may be short, but they are not that short."
Click here [2] to view the full CreditSesame.com report.