SEATTLE, March 17, 2021 /PRNewswire/ -- A credit
score impacts how much a home buyer can afford, what interest rate
they'll lock in -- and whether they'll qualify to buy a home at
all. But the average American doesn't understand what causes their
credit score to change, a recent survey1 fielded by
Zillow® shows.
Home shopping season is just around the corner, and low mortgage
rates make it a great time to buy. But before potential buyers
begin their home-hunting journey, they should understand what
impacts their credit score and how it affects their buying power
and budget.
Quiz takers were most likely (67%) to correctly answer that
investments in the stock market do not typically affect their
credit scores. Less than half (47%) correctly answered that credit
scores can affect your mortgage until the day you close, and just
41% knew that you should wait at least six months after taking out
a car loan before applying for a mortgage.
The struggle to understand what affects credit scores,
especially as it relates to home buying, wasn't limited to younger
Americans, who may have less experience building and using
credit.
Generation
|
Age
|
% of Respondents
with 3+ correct answers
|
Gen
Z
|
18-26
|
25%
|
Millennials
|
27-41
|
35%
|
Generation
X
|
42-56
|
47%
|
Baby Boomers/Silent
Generation
|
57+
|
41%
|
A strong credit profile plays an important role when trying to
qualify for a home loan, and will factor into the type of loan and
rate a lender can offer.
A higher credit score will lead to lower interest rates, which
can save thousands of dollars over the life of a loan and hundreds
of dollars a month in some markets. The lower the credit score, the
less favorable the terms, if the loan is approved at all. Zillow
research found a borrower with a "fair" credit score could pay
7 percent more over the life of a 30-year mortgage for the same
home as an otherwise identical borrower with an "excellent"
score.
"Lenders rely on credit scores as a key element of a borrower's
overall financial profile. Understanding your credit score and what
affects it will make your mortgage process go much smoother," said
Jonathan Lee, Zillow Home Loans
Senior Director, Mortgage Sales. "Once pre-approved by your lender,
it's important to avoid new credit inquiries and taking on new
debts prior to your loan closing. Any changes to your credit score
can lead to delays and in some cases even disqualify you for your
home loan. That plush new sectional may have to wait until after
you close."
The spring shopping season -- historically when the most houses
are put up for sale -- will likely be one for the record books. A
'perfect storm' of extreme demand will coincide with more
widespread vaccine distribution that surveys show will make folks
more comfortable listing their homes. Mortgage rates are still
historically low but have ticked up recently -- buyers will be
motivated to lock in soon.
As shoppers begin their buying journey, they would be wise to
check their credit score, and take steps to improve their
credit if they can. That includes always making at least
minimum payments, reducing balances, keeping an old account or two
and checking credit reports for any mistakes.
Despite these survey results, credit scores of homebuyers --
including those purchasing their first homes -- have risen
dramatically over the past 15 years.
A recent report from the NY Fed's Center for Microeconomic
Data shows that median credit scores for mortgages of first-time
home buyers ended 2020 at around 740. This is a far higher average
than credit scores that hovered between 680 and 700 from 2002-2007,
in the run-up to the mortgage crisis and the Great
Recession.
1 Survey Methodology: Zillow Group Population
Science collected a nationally representative sample of more than
2,000 Americans. Fielded between February 11
and February 19, 2021, the survey asked participants
questions about their comfort and likelihood to adopt new
technologies in home shopping. The survey also tested participants'
knowledge of credit scores. To achieve national representativeness,
quotas for age, education, sex, region, race, income, and marital
status limited oversampling of any given demographic group. In
addition to quotas, Zillow used statistical raking to weight the
sample to the US Census Bureau American Community Survey 2019
sample of adults.
About Zillow Group
Zillow Group, Inc.
(NASDAQ: Z and ZG) is reimagining real estate to make it easier to
unlock life's next chapter.
As the most-visited real estate website in the United States, Zillow® and its affiliates
offer customers an on-demand experience for selling, buying,
renting or financing with transparency and nearly seamless
end-to-end service. Zillow Offers® buys and sells homes directly in
dozens of markets across the country, allowing sellers control over
their timeline. Zillow Home Loans™, our affiliate lender, provides
our customers with an easy option to get pre-approved and secure
financing for their next home purchase. Zillow recently launched
Zillow Homes, Inc., a licensed brokerage entity, to streamline
Zillow Offers transactions.
Zillow Group's brands, affiliates and subsidiaries include
Zillow®, Zillow Offers®, Zillow Premier Agent®, Zillow Home Loans™,
Zillow Closing Services™, Zillow Homes, Inc., Trulia®, Out East®,
StreetEasy® and HotPads®. Zillow Home Loans, LLC is an Equal
Housing Lender, NMLS #10287
(www.nmlsconsumeraccess.org).
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SOURCE Zillow