by Marilyn Kalfus, real estate reporter
Nearly a third of Americans are unlikely to qualify for a mortgage because their credit scores are too low, making home ownership out of the question for many, according to an analysis by Zillow.com.
Borrowers with credit scores under 620 who requested purchase loan quotes for 30-year fixed, conventional loans were unlikely to get even a single loan quote on Zillow Mortgage Marketplace, even if they offered a relatively high down payment of 15 to 25%, Zillow says. According to myFICO.com, nearly one-third of Americans, or 29.3%, has a credit score that low.
Not surprisingly, the analysis found that the lowest interest rates went to borrowers who were among the 47% of Americans with primo credit scores of 720 or higher.
| Credit score | People in category | Annual % rate |
|---|---|---|
| <620 | 29.30% | N/A |
| 620-639 | 3.70% | 4.90% |
| 640-659 | 4.30% | 4.73% |
| 660-679 | 4.60% | 4.60% |
| 680-699 | 5.10% | 4.56% |
| 700-719 | 6.10% | 4.44% |
| >720 | 47% | 4.30% |
Highlights:
- In the first half of September, borrowers with credit scores of 720 or above got an average low annual percentage rate (APR) of 4.3 % for conventional 30-year fixed mortgages. (See other scores/rates in chart, right)
- Less than half of Americans qualify for the best interest rates available.
- Those with credit scores below 620 received too few loan quotes to calculate average low APR.
- Each 20-point credit score increase equates to a savings of $6,400 over the life of the loan on a $300,000 home.
Stan Humphries, Zillow’s chief economist:
“We are in an era of historically low mortgage rates, reaching levels not seen in decades. Coupled with four years of home value declines, homes are more affordable than we’ve seen for years. But the irony here is that so many Americans can’t qualify for these low rates, or can’t qualify for a mortgage at all. Four years ago, in the era of easy-to-get subprime loans, many borrowers with low scores did buy homes, which in turn helped contribute to a housing bubble. Today’s tighter credit is a predictable response by banks after the foreclosure crisis, but also keeps a cap on housing demand, which is important for the greater housing market recovery.”
Zillow on the data analysis:
“Zillow Mortgage Marketplace receives more than 300,000 loan requests each month 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 … The analysis took into account more than 25,000 quotes submitted between September 1 and September 15, 2010.”
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