Improvements in borrowers’ financial health is making it easier to qualify for a mortgage, according to a recent report from LendingTree, a leading online source that matches lenders and borrowers.
The report analyzes the financial health of prospective borrowers, ranking states based on a 100-point scale of criteria relating to average credit scores, loan-to-value ratios (LTVs) and overall lendability of mortgage-seekers in each state for the second quarter of 2013.
Since last year, prospective borrowers have increased their average credit scores by more than 10 points and have reduced average LTV ratios by 1.6%, improving their likelihood of qualifying for a home loan, according to LendingTree data.
A loan-to-value ratio is the percentage of a property’s value that is mortgaged, and is also a risk assessment tool financial institutions and other lenders use before approving a mortgage. It takes the amount you are looking to borrow and divides that by the appraised value of the home you would like to purchase.
For example, if you need to borrow $75,000 to purchase a home valued at $100,000, then your LTV ratio would be 75%. Lenders typically view an LTV that is above 80% as a high risk and are less likely to approve the mortgage.
Between the first and second quarters of 2013, average credit scores increased in 41 states and average LTV ratios for prospective borrowers declined in 43 states, signaling an overall improvement for borrower health.
“It’s encouraging to see a shift towards more responsible borrowing,” said Doug Lebda, founder and CEO of LendingTree. “Higher credit scores and improved LTVs are a sign that borrowers are working to improve their financial health.”
Qualifying for a mortgage might be easier depending on where you live, as some states scored higher than others in terms of the financial health of its borrowers.
States with the healthiest borrowers
Washington, D.C., New Jersey, Hawaii, Massachusetts and California led the nation with the healthiest prospective borrowers, all of which posted scores above 90, according to LendingTree’s analysis.
While those five states topped the ranks as places with the healthiest borrowers, at least 18 other states trailing them were still above the national average score of 81.51 out of the 100-point scale for all of the United States.
Arkansas, Oklahoma, Michigan, South Carolina and Louisiana were among the bottom states for improving borrower health, as it relates to credit scores and LTV ratios.
A recovering housing market highlighted by steady price gains on a national level is also contributing to borrowers’ ability to obtain mortgages.
“As the housing market bounces back, credit is becoming more accessible, making it easier for consumers to qualify for mortgages,” said LendingTree’s Lebda. “But consumers still need to monitor their credit scores and understand their financial situations when looking to purchase a home in order to qualify for the lowest rates and maintain long-term financial health.”
If you’re in the market to purchase a home and would like to know more about qualifying for a mortgage, contact us for more information.
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