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Borrowers: Increase Your Buying Power

shutterstock_43167658 copyIn an effort to empower consumers by providing additional information on how their credit profile affects their loan prospects, LendingTree.com  recently released its November Mortgage Offers Report with their Chief Economist Tendayi Kapfidze’s analysis of November’s mortgage offers.

Utilizing data from actual loan terms offered to borrowers by lenders,  Kapfidze finds that consumers with the highest credit scores (760+) experienced offered annual percentage rates (APRs) of 4.16 percent in November, compared to 4.43 percent for consumers with scores of 680-719.

According to Kapfidze, the APR spread of 27 basis points (bps) between these score ranges was 5 bps wider than in October—and the widest since July 2016—representing almost $13,400 in additional costs for borrowers with lower credit scores over 30-years for the average purchase loan amount of $233,127.

“The spread between the highest and lowest score buckets is widening,” Kapfidze exclusively told MReport. “This means although rates have been in a downward trend this year after last December’s spike, lower credit score borrowers have not benefitted. This may signal that lenders are tightening standards on lower quality borrowers by increasing risk-based pricing add-ons.”

In terms of refinancing APRs for conforming 30-yr fixed loans—they were down 2 bps to 4.24 percent. The credit score bracket also expanded to 19 from 16 bps, amounting to $9,500 in extra costs over the life of the loan for lower credit score borrowers given an average refinance loan of $235,973.

While the additional costs are due to higher interest rates, larger fees, or a combination of the two, Kapfidze explains that “A better credit profile increases borrowers’ loan options and lowers their price. This gives a borrower more buying power, which ultimately means more opportunity in the housing market to obtain a property that meets the borrower’s requirements.”

The best offers for borrowers with the best profiles in November had an average APR of 3.75 percent for conforming 30-year fixed purchase loans. Meanwhile, refinance loan offers were down 1 basis point (bps) to 3.69 percent.

The report notes that purchase APRs for conforming 30-yr fixed loans offered on LendingTree’s platform were down 1 bps to 4.30 percent for the average borrower,  the lowest since the same time last year. Conversely, the loan note rate of 4.18 percent was unchanged from October when it reached the highest since July.

In addition, the average proposed purchase down payments have been rising for 8 months and reached $62,409. In the end, Kapfidze offered additional insight for borrowers.

“The savings from a higher credit score can be combined with savings from shopping for a loan to create even greater benefits for a borrower,” Kapfidze added. “In today’s competitive market, prospective buyers should reach for every advantage available.”

View the full report, here.

About Author: Nicole Casperson

Nicole Casperson is the Associate Editor of DS News and MReport. She graduated from Texas Tech University where she received her M.A. in Mass Communications and her B.A. in Journalism. Casperson previously worked as a graduate teaching instructor at Texas Tech's College of Media and Communications. To contact Casperson, e-mail: nicole.casperson@thefivestar.com.

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