Nearly a third of Americans wouldn't qualify for mortgage

by Ryan Smith27 Sep 2013

Even with the housing market on the mend and rates dropping, three out of 10 Americans are unlikely to qualify for a mortgage, according to an analysis released Thursday.

A study by Zillow Mortgage Marketplace analyzed 13 million loan quotes and more than 225,000 purchase loan requests in September and compared the results to a previous study in September of 2010. The study showed that borrowers with credit scored under 620 who requested purchase loan quotes were unlikely to receive even one quote, even if they could offer a down payment of 15-25%. That’s unchanged from September of 2010, according to Zillow. Almost three out of 10 Americans have credit scores below 620.

“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 homeownership 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.”

Meanwhile, it’s getting even harder to qualify for the best mortgage rates. In 2010, the best rates typically went to those with credit scores of 720 or higher. Now those rates are reserved for those with scores of at least 740, according to the study. About 40% of Americans have credit scores of 740 or above, the study reported.

According to the study, borrowers with credit scores of 740 or higher got an average annual percentage rate of 4.42% for conventional 30-year fixed-rate mortgages. Those with scores between 620 and 739 got APRs that averaged between 4.47% and 5.09%. Borrowers with scores below 620 received too few loan quotes to calculate an average APR, according to the study.

COMMENTS

  • by Andy Zook | 9/27/2013 9:18:20 AM

    Does this surprise anyone? Not everyone SHOULD own a home. Many individuals/families do not have the financial stability to take on the responsibility of home ownership. I am in the mortgage business, if you have a 620 credit score or lower, you have already demonstrated that you do not have the financial stability necessary for home ownership. This is not meant to be a knock on these families - just a recognition of economic reality. Good jobs are tough to find, wages are falling, health insurance coverage lacking, lack of savings. I see many clients who are really just getting by paycheck to paycheck. One hiccup and they are in real trouble. The historical rate of home ownership has been in the mid 60% range. During the last housing bubble when everyone could get a mortgage, regardless of credit score, income no assets, etc., the home ownership rate rose to approximately 70%. That did not end well for those families that were truly on the margin or most other home owners as well.

  • by Elaine R | 9/27/2013 9:19:35 AM

    I've been in the business since long before FICO scores. Back in the "old days", it was a given that 30% of the pipeline would not get approved. Funny how the old standard is back. At least something is returning to "normal". Not everyone can get, nor are they entitled to a mortgage, but at least the market place set the standards and things ran well until the advent and endorsement of Subprime mortgages by FNMA itself. Of course, they'll never admit that they're responsible for any of it.

  • by Steve Felt | 9/27/2013 9:24:35 AM

    Although we have access to private lenders that can do the sub-prime borrowers if they need to refinance or want to buy.

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