Lenders Raise The Bar.

I continue to write about credit scores as they relate to getting an approval simply because Lenders continue to raise the limit needed to qualify.

How high is High?
The maximum score given by the three major bureaus is 850. Lenders use the middle score of the three sources: if your scores are 680, 740, 655, your loan will be in the 680 category. This means that your interest rates, points, programs and documentation required will reflect that score. You may be paying more, having to produce more documents and your fees may be higher than if your score were 700 or 740!

Automated Underwriting (AU) versus Manual (Human) Underwriting.
With the advance of technology, your information may only be reviewed by a human being after an AU has processed it. The AU relies on the criteria set by the lenders. If the minimum score set for approving a category of programs is 740, the system will reject file that does not measure up. The file may then go to manual underwriting for review. The combination of Automatic credit rating and underwriting can be deadly if there are errors in the report and/or the data fed to the system. This usually results in delays and sometimes denials.

Impact on the Borrowers.
The reliance on and the higher credit scores set by lenders explain in part why houses are not moving fast enough despite low interest rates. The Fed, Congress and all well meaning initiatives cannot overcome the barriers that new lending guidelines have set.

Investors' Plight.
In addition to credit scores lenders are setting down payment requirements higher for investors, i.e. those whose purchase or refinancing is not backed by their principal residence. (Collateral).

To summarize, we see that a lot of factors are involved when trying to explain the Real Estate market: because lenders are loosing betting on less credit worthy customers, they are now making it harder to get approved., and not getting approved leads to fewer purchases and refinances.
Those who must refinance but cannot may end up adding to the existing inventory of unsold homes.Low interest rates will not necessarily translate into more sales or refinancing. The credit factor trumps income and rates: a high income is not synonymous with good credit or high savings and, it alone does not guaranty an approval.