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Borrowers face difficulties qualifying for a mortgage

Three out of 10 people have credit scores of 620 or less

Three out of 10 Americans are unlikely to qualify for a mortgage, despite historically low interest rates and levels of affordability not seen in years, data from Zillow (Z) revealed.

Zillow looked at 13 million loan quotes and more than 225,000 purchase loan requests on Zillow Mortgage Marketplace in September, comparing them to a similar study conducted in September 2010.

What Zillow found was discouraging for borrowers looking to buy a home — especially those affected by the recent financial crisis.

Borrowers who have FICO credit scores under 620 who requested purchase loan quotes for 30-year fixed, conventional loans were unlikely to receive even one loan quote in September. This was unchanged from three years ago, even if they offered a relatively high downpayment of 15%-25%.

According to data provided by, nearly 28.4% of Americans have a credit score of 620 or lower.

At the same time, the bar has been set higher for those looking to get the lowest available mortgage rates. Typically, the best mortgage rates are reserved for borrowers with credit scores of 740 or higher, compared to 720 in 2010. Data revealed that 40.3% of Americans currently fall into this category.

Three years ago, 47% of Americans had credit scores over 720 and were able to get the best rates. Borrowers with credit scores above 740 did not receive significantly better mortgage rates.

In the September study, borrowers with credit scores of 740 or above got an average low annual percentage rate of 4.42% for conventional 30-year fixed mortgages.

Borrowers with mid-range credit scores between 620 and 739 received APRs, on average, between 5.09%-4.47%, with the APR rising as the credit score drops. Those with credit scores below 620 received too few loan quotes to calculate the average low APR.

"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. To avoid any surprises when buying a home, check your credit score and report at least six months before you intend to buy to see if there are any costly inaccuracies, pay down high-balance lines of credit and make sure your bills are always paid on time," he added.

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