Just Who Does Qualify For a Loan These Days?

The answer? Not many, that's who' While mortgage rates are being advertised as the lowest in a lifetime, the simple fact is that thousands of prospective buyers will never qualify for them. Lending standards have been tightened up considerably in an effort to avoid a new housing bubble, and now a new report illustrates just how difficult things have become for borrowers.

For many borrowers, having a down payment isn't enough © Scanrail - Fotolia.com

The report was compiled by the Federal Reserve, following a survey of major lenders in the US, and found that banks were much less likely to grant a mortgage to borrowers than they were back in 2006, before the market crashed, reported the New York Times.

Looking at the example of a borrower with a FICO credit score of 620 and a 10% down payment, the report found that the majority of banks were unlikely to issue a mortgage to any individual in this situation.

For borrowers with a FICO score of 680, the report states that moderate net fraction of banks were less likely now than in 2006 to issue a mortgage, irrespective of any down payment.

Furthermore, the report states that even borrowers with a FICO score of 720 could struggle to get accepted for a loan, as, compared to 2006, 'a modest net fraction of banks were less likely to originate loans to borrowers with a FICO score of 720 and a 10 percent down payment.'

However, survey respondents did indicate that the likelihood of a loan being issued in the case of a 720 FICO score would increase if the borrower was able to put up a deposit of 20% or more.

The report underlines the general perception that while mortgages continue to be offered at record low rates, numerous home buyers cannot get accepted for one, and even those who do find they cannot qualify for the lowest rates.

In its analysis of the report, the New York Times explained that borrowers with a FICO score of 720 would likely receive a loan at 3.70% interest, for a standard $300,000 fixed rate mortgage over 30-years. Meanwhile, a borrower with a FICO score of 620 would likely be offered a 5.07% mortgage interest rate, which amounts to an extra $242 a month on their mortgage repayment.