What credit score do you need to get the absolute best interest rates for a mortgage? That’s the question the Zillow mortgage division set out to answer with its recent survey. To come to the conclusion, the Zillow survey factored in data from 13 million loan quotes and 225,000 purchase loan requests from September of this year. They then compared that data to a similar study they did in 2010 to evaluate trends in credit and mortgage.
Their findings showed that to get the best home loan interest rate, consumers need a credit score of 740 or better (out of a possible 850.)
They dug deeper to find that only 40.3% of Americans have that score – a 740 or better.
Their data shows what many have experienced anecdotally – that lending requirements are getting more stringent and it’s harder to get the best interest rates now. Back 2010, when they did the first survey, consumers only need a 720 to qualify for the lower rates. 47% of the applicants polled did qualify, a whopping 7% of a large sample size that have fallen out of favor in just a few short years.
However, it’s not just that a different demographic of borrower is applying – the 30% mortgage application approval rate hasn’t changed since 2010, even with higher down payments and tightened standards.
In fact, 3 out of 10 Americans still have credit scores below 620 and wont qualify at all for a home loan.
The difference? In September, when the study was conducted, a score of 740 or above yielded an average interest rate of 4.42%. Borrowers with scores from 620-639 got an average rate of 5.09%.
That may not sound like much – and they’re both great rates historically, but
At 4.42%, a $200,000 30-year fixed loan costs $1,004 a month, with interesting totaling $161,397 over 30 years. At 5.09%, the payment would be $1,085, with total interest at $190,482.
What does this mean? A borrower would be paying approximately $30,000 more in total interest over the life of the loan.
That’s why we recommend you come to the table for your refinance or home purchase with the best possible credit score. That may sound obvious, but back in the real estate boom there were so many alternative, ARM, and no-money down loan programs that the interest rate matter less.
More and more good loan officers and mortgage professionals are preparing their clients up to 6 months ahead of time, usually by pulling a credit report and getting them over to a qualified credit restoration professional if their scores are below that 740 mark. With a little planning, patience, and commitment, they’re ready to get the best rates possible when it comes time to sign the deal. The difference, as we can see, can save them serious bucks.
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Contact Blue Water Credit if you'd like a complimentary analysis of your credit situation - or you need some help to reach that 740.
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Contact Blue Water Credit if you'd like a complimentary analysis of your credit situation - or you need some help to reach that 740.
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