Borrowers with FICO scores of 620 or lower will get a chilly reception from a growing number of banks unless they are willing to make substantial down payments.
Banks, most of them smaller banks, participating in the most recent Survey of Senior Loan Officers by the Federal Reserve indicated that they were less likely to approve loan applications with a FICO score of 620, depending on the size of the down payment.
Currently the median FICO score for all approved loans is 748. For approved conventional purchase loans, the median is 761 and for FHA purchase loans, 698.
Banks were more likely to approve an application for a conventional loan with a FICO score of 720 and a 20 percent down payment. However, about one-third of said they were less likely to approve loan such applications with FICO scores of 580 or 620.
Overall, only a few banks reported changes in either standards or demand for any type of residential real estate lending during the previous three months, though a significant number said that indicated that the demand for prime mortgages had picked up. A few domestic banks reported having eased their standards on prime residential mortgages, and respondents’ lending standards for nontraditional mortgages were little changed.
Roughly three-fourths of banks viewed the outlook for house prices or economic activity as important factors currently affecting their bank’s residential real estate lending. Three-fourths of banks also cited the risk of putback of delinquent mortgages by the GSEs as an important factor restraining their current ability or willingness to approve home-purchase loans. A large fraction of banks reported an increase in the importance of this factor over the past year.