The financial health of prospective mortgage seekers fell slightly in the third quarter, according to a LendingTree report, but there is no reason to be concerned about this drop.
The Borrower Health Score fell 1.6 points from 2Q13 and now has a mark of 79.9 through the third quarter. However, the score is still 7.2 points above a year earlier, LendingTree revealed. This year-over-year improvement implies that mortgage seekers are in relatively good health and that there is broader trend of improving borrower qualification levels.
LendingTree bases this score on a 100-point scale and is calculated by using a weighted average of credit score, loan-to-value, and overall lendability of mortgage-seekers in each state.
Among would-be borrowers in the health score, the average LTV ratio increased from 88.4% to 89.8% during the third quarter. This uptick suggests that rising home prices placed more financial pressure on future borrowers.
Meanwhile, average FICO scores declined in 3Q13 by four points
Both of these changes are consistent with an erosion of borrower qualifications, as borrowers seem to be seeking larger loans (relative to the value of the properties in question) with weaker credit histories. This naturally resulted in a decline in the Borrower Health Score.
“In order for the housing market to maintain and improve home prices, there needs to be a growing pool of well-qualified borrowers in the market for homes. Housing market recovery is geographically dispersed and dependent on the overall jobs market as well,” says Doug Lebda, founder and CEO of Charlotte-based LendingTree.
Hawaii, Washington, D.C., New Jersey, California and Massachusetts continue to have the healthiest prospective borrowers nationwide, with all having scores above 90. Hawaii led the nation with a score of 96.1, while Mississippi posted the lowest mark of 67.1.
“Prospective homebuyers should become familiar with both the health of their own credit and the health of the market in their area before making decisions about buying a home,” LendingTree says.
