Americans are getting fewer mortgages, even as rates stay low

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As the refinancing boom runs its course, fewer Americans are applying for mortgages. The volume of home loans being issued by lenders slowed in April to the lowest level since the early days of the coronavirus pandemic, mortgage data firm Black Knight says in a report released Monday.

The volume of borrowers locking in rates for new loans — either for home purchases or for refinancing — fell to its slowest pace since May 2020. The slowdown comes even as rates were retreating. Mortgage rates fell for five weeks in a row in April and May before rising a bit last week, according to Bankrate’s national survey of lenders.

The volume of basic rate-and-term refinances fell 20 percent from March to April, while cash-out refinances were off 13 percent. Even purchase mortgages were down 6 percent, perhaps a reflection of steep increases in home prices and a shortage of homes for sale.

“Despite interest rates trending downward in April across all mortgage products, the decreases did not seem to be enough to bring borrowers – particularly refi borrowers – back to the table,” said Black Knight’s Scott Happ.

Black Knight calculates that there are some 14.5 million homeowners who still could benefit from refinancing. However, it seems as if the most creditworthy borrowers already have taken advantage of refinances.

One feature of the COVID-19 housing market is that many Americans getting mortgages have excellent credit. However, according to Black Knight, borrowers’ credit scores have ticked down in recent months.

The average credit score for borrowers applying for conforming loans has dipped from 757 in December to 749 in April, the company reported. The trend was similar for borrowers locking in rates through Federal Housing Administration and Veterans Affairs loan programs.

“As volume has tightened, we’ve seen average credit scores decline across all products and purposes, and conventional loans lose share to government-backed mortgages,” Happ said. “Neither are unexpected developments given that, when rates begin to rise, higher-credit borrowers tend to simply not engage.”

What you can do to get the best mortgage rate

Before committing to a lender, do your research. To secure the most favorable mortgage rate, take these steps:

  • Compare offers: Get offers from at least three lenders. If you live in an area with limited competition among local banks, that might require you to shop online. The upside: Comparison shopping can save you thousands of dollars over the life of the loan.
  • Look beyond brick-and-mortar lenders: The bank or credit union where you keep your cash might offer the best deal on a home loan, but make sure you do some comparison shopping. Rates and closing costs can vary widely by lender.
  • Spruce up your credit score: Improving your credit is the best way to lower your rate, and it’s more effective than boosting your down payment or improving your debt-to-income ratio. The best deals go to borrowers with credit scores of 740 or higher.

Learn more:

Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
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