Low Credit Scores Blocking 1/3 of Americans from Homeownership

Nearly one-third of Americans are unlikely to qualify for a mortgage because their credit scores are too low, making homeownership out of reach for many, according to the online real estate marketplace ""Zillow"":http://www.zillow.com.
[IMAGE] The Seattle-based company analyzed more than 25,000 loan quotes and purchase requests on ""Zillow Mortgage Marketplace"":http://www.zillow.com/mortgage-rates/ during the first half of September and found that borrowers with credit scores under 620 who were seeking a 30-year fixed, conventional loan were unlikely to receive even one loan quote, even if they offered a down payment of 15 to 25 percent.

Nearly one-third of Americans, or 29.3 percent, has a credit score this low, according to data provided by ""myFICO.com"":http://www.myfico.com.

Not only are a third of Americans locked out of owning a home, but less than half qualify for the best rates. The lowest interest rates went to mortgage borrowers who were among the 47 percent of Americans with credit scores of 720 or above.

During the first half of September, borrowers with credit scores of 720 or above got an average low annual percent-

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age rate (APR) of 4.3 percent for conventional 30-year fixed mortgages.

Borrowers with mid-range credit scores between 620 and 719 received APRs between 4.73 and 4.44 percent, with the APR rising as the credit score dropped. Zillow says those with credit scores below 620 received too few loan quotes to even calculate the average low APR.

The company points out that for those with mid-range credit scores of 620 to 719, improving their number can mean a significant savings in interest over time. For each 20-point credit score increase, the average low APR declines 0.12 percent, according to Zillow. For a $300,000 home, with a 20 percent down payment, that equates to a savings of $6,400 over the life of a 30-year loan.

""We are in an era of historically low mortgage rates, reaching levels not seen in decades,"" said Dr. Stan Humphries, Zillow's chief economist. ""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.""

Humphries added, ""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 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.