News of historically low mortgage interest rates has seen a lot of airtime over the last few years, but a new report from Zillow suggests that those low rates are reserved only for those with exceptional credit. The study revealed that as many as one-third of Americans who apply for home loans do not receive quotes and that preferred quotes are given to people who have a credit score of 740 or better, which is far out of range for many people. Nearly 30% of Americans have credit scores below 620, a group that had little luck finding a loan even if they were willing to put as much as 25% percent down on the purchase of the home. For more on this continue reading the following article from Property Wire.
Despite a healing housing and mortgage market, three out of 10 people in the United States remain unlikely to qualify for a mortgage, according to a new analysis.
Real estate firm Zillow analyzed 13 million loan quotes and more than 225,000 purchase loan requests in September 2013 and compared it to a similar study conducted in September 2010.
Borrowers with credit scores under 620 who requested purchase loan quotes for 30 year fixed, conventional loans were unlikely to receive even one loan quote in September 2013, unchanged from three years ago, even if they offered a relatively high down payment of 15 to 25%.
It also found that nearly three out of 10 Americans, or 28.4%, have a credit score of 620 or lower, according to data provided by myFICO.com.
Meanwhile, the bar has risen for borrowers to get the lowest available mortgage rates. The best mortgage rates are typically reserved for those with credit scores of 740 or higher, compared with 720 in 2010. According to myFICO.com, 40.3% of Americans currently fall into this category. In 2010, 47% of Americans had credit scores over 720 and were able to get the best rates. Borrowers with credit scores above 740 did not receive significantly better mortgage rates.
In the 2013 study, borrowers with credit scores of 740 or above got an average low annual percentage rate (APR) of 4.42% for conventional 30 year fixed mortgages. Borrowers with mid range credit scores between 620 and 739 received APRs, on average, between 5.09 and 4.47%, with the APR rising as the credit score drops. Those with credit scores below 620 received too few loan quotes to calculate the average low APR.
‘Despite all time high levels of affordability in the housing market, tightened lending standards mean that nearly one third of Americans are unlikely to be able to achieve the American dream of home ownership because they can't qualify for a mortgage due to a low credit score,’ said Erin Lantz, director of mortgages at Zillow.
‘Your credit score is the single most important factor in determining your mortgage interest rate and monthly payment. To avoid any surprises when buying a home, check your credit score and report at least six months before you intend to buy to see if there are any costly inaccuracies, pay down high balance lines of credit and make sure your bills are always paid on time,’ said Lantz.
Zillow Mortgage Marketplace received nearly 17 million loan requests in the past year from borrowers, who can anonymously request mortgage quotes from hundreds of lenders across the country. Lenders then submit loan quotes customized to each borrower's financial situation.
This article was republished with permission from Property Wire.