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Lenders Wary of Giving Loan Quotes to Self-Employed Mortgage Borrowers

Systemic low credit scores among self-employed borrowers hamper credit availability, according to Zillow® Mortgages

Dec 4, 2014

SEATTLE, Dec. 4, 2014 /PRNewswire/ -- Although they have higher incomes and seek to buy more expensive homes, self-employed borrowers receive 40 percent fewer purchase loan quotes, primarily because of their typically lower credit scoresi, according to a Zillow Mortgages analysis.

Lenders use several factors to decide whether they want to quote a loan request, including property values, down payments, income and credit score. For many self-employed borrowers, credit score appears to be a primary factor hampering their access to a mortgage.

"Self-employed borrowers will no doubt face headwinds when trying to get a loan. Low credit scores, coupled with a mountain of paperwork lenders must complete specifically for self-employed borrowers, make them unattractive," said Zillow Vice President of Mortgages Erin Lantz. "So, despite self-employed borrowers with high incomes appearing on paper to be better situated to repay their loan, they're often overlooked by lenders. In cases like this, it really pays to shop around."

How self-employed (SE) borrowers stack up to non-self-employed (NSE) borrowers:

Loan quotes:  Even as loan amounts, down payments and incomes have trended up for self-employed borrowers, the number of loan quotes given to self-employed borrowers has trended down.

  • Todayii, self-employed borrowers receive six loan quotes for every 10 received by non-self-employed borrowers.
  • In June 2011, self-employed borrowers received seven loan quotes for every 10 received by non-self-employed borrowers.

Credit scores: Self-employed mortgage shoppers are about twice as likely as non-self-employed mortgage shoppers to report a FICO® score below 680.

  • SE: Forty-seven percent have self-reported credit scores below 720, while 28 percent have scores below 680.
  • NSE: Twenty-three percent have self-reported credit scores below 720, while 14 percent have scores below 680.
  • According the myFICO®, the median U.S. credit score was 692 in April 2014. But lenders recommend a credit score of at least 740 to get the best mortgage interest rates.

Property values: Self-employed borrowers request loan quotes on homes that are typically 12 percent more expensive than non-self-employed borrowers.

  • SE: The median property value for mortgage requests on Zillow is $352,000.
  • NSE: The median property value for mortgage requests on Zillow is $315,000.

Income: Self-employed borrowers report 81 percent higher household incomes.

  • SE: The average self-reported household income is $145,000.
  • NSE: The average self-reported household income is $80,000.
  • Income for self-employed borrowers is up by 28 percent since the summer of 2012, whereas the reported household income for non-self-employed borrowers is down 17 percent during the same time period.

Down payment: Self-employed borrowers put down larger down payments.

  • SE: The average down payment for mortgage requests on Zillow was 15.3 percent.
  • NSE: The average down payment for mortgage requests on Zillow was 14.6 percent.

About Zillow

Zillow, Inc. (NASDAQ: Z) operates the largest home-related marketplaces on mobile and the Web, with a complementary portfolio of brands and products that help people find vital information about homes, and connect with the best local professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Stan Humphries. Dr. Humphries and his team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. The Zillow, Inc. portfolio includes®, Zillow Mobile, Zillow Mortgages, Zillow Rentals, Zillow Digs®, Postlets®, Diverse Solutions®, Mortech®, HotPads™, StreetEasy® and Retsly™. The company is headquartered in Seattle., Zillow, Postlets, Mortech, Diverse Solutions, StreetEasy and Digs are registered trademarks of Zillow, Inc. HotPads and Retsly are a trademarks of Zillow, Inc. FICO and MyFICO are registered trademarks of Fair Isaac Corporation.

i From a database of nearly 2 million loan requests per month, Zillow calculated the average self-reported income, home value, and credit score for mortgage shoppers on Zillow who reported being self-employed and compared these values to home shoppers who did not report being self-employed. Zillow included shoppers who were seeking a conventional 30-year fixed-rate purchase loan, and excluded shoppers who reported having a foreclosure or bankruptcy history.
ii "Today" refers to a six-month weighted average ending October 31, 2014.

SOURCE Zillow, Inc.

For further information: Alison Paoli, Zillow, 206-757-2701 or