According to the Zillow Mortgage marketplace, nearly one-third of Americans are unlikely to be able to qualify for a mortgage today due to their credit scores. This information is based on mortgage quote requests on the website.
Borrowers with credit scores below 620 applying for 30 year fixed mortgages were unlikely to receive even one quote from a lender. This was true even if they offered a significant down payment of 15% to 25% of the purchase price. According to myFICO.com, 29.3% of Americans currently have credit scores below 620.
At the same time, applicants with credit scores of 720 or higher are receiving the lowest interest rates. In the first half of September, borrowers with credit scores over 720 received an average 4.3% interest rate on 30 fixed rate mortgages.
Applicants with mid-range credit scores between 620 and 719 are paying higher interest rates, rising as credit scores drop. One analysis shows that these mid-range scores can be increased with monitoring and corrections to credit reports and save borrowers a lot of money over the life of their loans. One study shows that a 20 point increase in credit score can reduce the mortgage interest rate by one-eighth of a point.
Working with someone experienced in credit repair before ever applying for a rate quote is the advised approach. A mortgage broker with access to multiple lending sources and experience in credit scoring and working with mid-range score applicants can often get a borrower's score raised, a loan offer, and a better mortgage rate for the client.