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Only perfect buyers need apply

Posted by Scott Van Voorhis May 13, 2013 10:55 AM

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Basically, if you have stellar credit and a big chunk of cash, banks are ready to do business with you. Maybe they will even roll out the red carpet.

But if you are a little less than perfect, landing a mortgage could prove tougher.

Lending standards remain tight for most buyers and have actually gotten tougher for those with the weakest credit, a new Fed study shows.

The only exception is for buyers with stellar credit scores of 720 and up, with enough cash for 20 percent down payment.

Given the median home price in Massachusetts is hovering near the $300,000 mark, you are looking at a downpayment of $60,000.

Here's an excerpt from the Fed survey of bank loan officers:

The April survey contained a set of special questions about domestic banks? RRE lending policies. One such question asked banks how much more or less likely it currently is, compared with a year ago, that their bank would approve an application for a GSE-eligible, 30-year fixed-rate home-purchase loan from a borrower with a FICO score (or equivalent) of 620, 680, or 720 and a down payment of 10 or 20 percent (for a total of six categories of borrowers). Modest to moderate net fractions of banks indicated that they were currently less likely to approve such loan applications with a FICO score of 620, depending on the down payment, though most of those were smaller banks. Willingness to approve applications for most of the other FICO score-down payment categories was reportedly about unchanged from a year ago. However, a modest net fraction of banks were more likely to approve an application with a FICO score of 720 and a 20 percent down payment.

Buyers looking to go the FHA route also face tougher sledding now, the Fed survey shows.

Banks were also asked to compare their bank?s current likelihood of approving an application for an FHA-insured home-purchase loan with a given FICO score and the FHA minimum down payment of 3.5 percent with their likelihood a year ago. About one-third of respondents indicated that they were less likely to approve such home-purchase loan applications with FICO scores of 580 or 620.

This blog is not written or edited by or the Boston Globe.
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Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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