Close to one-third of Americans are unlikely to qualify for a mortgage, which leaves a gap in mortgage availability. Many Americans no longer have the credit score required for homeownership. According to Zillow Mortgage Marketplace, borrowers with a credit score under 620 who asked for purchase loan quotes for 30-year fixed, conventional loans were highly unlikely to get even one loan quote even when offering a down payment of 15-25%. According to data provided by myFico.com, 29.3% of American’s have a credit score below 620.
At the same time, there are 47% of Americans who have an excellent credit score of 720 or above who were able to claim low interest rates on their mortgages. These borrowers were able to receive an APR of 4.3% for a conventional 30-year fixed mortgage because of their excellent credit score.
Borrowers with mid-range credit scores between 620 and 719 were given APRs between 4.73% and 4.44%. Credit scores blow 620 were too few to calculate an average low APR.
If you are looking to purchase a new home and your credit score is within the mid-range of 620-719, improving your credit score will help ensure a significant savings in interest over time. The average low APR declines 0.12% for each 20-point credit score increase. For a $300,000 home, with at least 20% down, you can save $6,400 over the life of a 30-year conventional loan.
Now that we are in an era of historically low mortgage rates and home value declines, homes are more affordable than ever. So, if you are having trouble getting a home loan because of your low credit score, work on paying off your debts and erasing them from your credit file. You, too, can have the home you’ve always dreamed of for prices you won’t see again for a very long time.
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