How High Are Credit Scores And Down Payments Among 2023 Homebuyers?

The other day we preempted our October Housing is Haunted series with a look at breaking news on the scary state of consumer debt. 

In that story we looked to big bank earnings presentations to quantify just how bad things are getting. 

Recall we noted: 

The average FICO score of BofA credit card consumers is consistently in the 770s.

As we perused the reports, we checked in on mortgage activity at the banks. Turns out it’s interesting and relates to yesterday’s discussion on saving for a down payment and today’s more objective part two, which is a look at down payment activity across the country. 

But, before we get all objective on you, let’s throw down some more subjective hot sports opinions. 

At Bank of America (BAC), mortgage originations for Q3/2023 hit $5.6 billion. That’s down from $5.3 billion in Q2, but up from $3.9 billion in Q1. It’s way, way down from Q3/2022’s $8.7 billion worth of new mortgage money coming into BofA. 

One thing that’s constant: The credit scores of the consumers Bank of America gives mortgages to. You know, the right to sign 30 years of your life away and pay more interest than principal over the life of the loan. (We can’t stop, won’t stop giving our opinion). 

Anyhow, the average FICO score last year for these mortgage recipients was 768. This year, it’s 772. That’s pretty solid credit. 

You’re not driving into a BofA parking lot in your repossessed car (like that’s even possible) and getting a mortgage loan. 

In yesterday’s Juice, we mentioned Rocket Mortgage — part of Rocket Companies (RKT) — and their fancy little 1% down payment promotion. It’s not that we don’t like it as much as we don’t like what it ultimately represents. This drive to get people into home ownership who aren’t financially ready for home ownership. Plus, we don’t like it. 

Anyhow, we dug into Rocket’s SEC filings and we’re surprised to see … well, let’s just take it verbatim from the company’s Q2 filing: 

We originated $22.3 billion in residential mortgage loans, which was a $12.2 billion, or 35% decrease compared to $34.5 billion for the same period in 2022.

We knew Rocket was big. But we didn’t know they were that big. Turns out they’re the largest mortgage lender in the United States. Bigger than BofA by a mile. For the record, BofA ranks third among bank mortgage lenders, trailing #2 JPMorgan Chase (JPM) and #1 Wells Fargo (WFC). 

If you dig into Wells’ most recent SEC filing (Q3), you find that 98.4% of the company’s mortgage recipients have FICO scores of higher 700 or higher. And 92.3% come in at 740+. 

JPMorgan reports things a bit differently, but states that the “weighted average FICO score” of its mortgage borrower in Q3 was 771. 

So the big three are all right about in the same ballpark. 

Rocket comes in considerably lower with a weighted average credit score of 734. Not horrible, but certainly not in the high 700s and, logic dictates, with quite a few borrowers coming in at less than 700. 

We should also note Rocket’s stock is in the toilet over the last five years. It’s down roughly 70%, while BAC is down just 3.5%, WFC is down 23.3% and JPM is actually up 36.5%. Among the not-so-stellar performers, if we were going to put our money anywhere, it would be in BAC and WFC, not RKT. 

Just some food for thought to consider. 

Like back in the not-so-good old days of We Report, You Decide! Remember that? 

Onto to today’s objective data. 

On down payments. 

Realtor.com put out some interesting data on this key aspect of home buying. As the real estate giant notes, the more cash you have to put down, the more competitive you are in a competitive market. 

But just how much are people actually putting down across the country? 

Santa Rosa, California tops the list with homebuyers there putting down 25% of the sale price in Q3. Why so high? Realtor.com thinks it’s because people are moving there from the more expensive nearby Bay Area and wine country communities after selling their previous homes and using the equity to cover a good chunk of the new purchase. 

Next on the list is North Port, Florida at 23.5% followed by Fort Collins, CO at 23.2%. Here again, it’s all about retirees and others using equity to make a move. In a place such as Boston, which comes in 5th at 21%, it’s more about competition. 

On the other end of the spectrum, the lowest down payment percentages range from 5.3% in #1 Killeen, Texas to 10% in Peoria, Illinois. Why so low? Military buyers live in many of the towns in the top ten. They can utilize VA loans that require no down payment, which drags down the average percentage. 

The national average for down payment percentage of the sale price during Q3 was 13.8% for a median of $27,333. 

The Bottom Line: $27,333. For some people that’s a lot of money. For others, it’s a spit in the bucket. 

Which ties together this entire discussion on down payments and being well-positioned financially to become a homeowner. No more than ever, this is a personal decision based not only on your financial circumstances, but what you really want out of life. 

Gone are the days when young people gave into pressure from Mom and Dad and their peers and bought a house because that’s what you’re supposed to do. Buying a home used to be a good deal. Now, even though it’s expensive, renting makes more objective financial sense across much of the country. 

We’d love to know your stance on the subject, particularly if you rent and find it difficult, if not impossible to buy a home. Where’s your head in all of this?

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