Buying a House with Bad Credit
It is very easy to deny the fact that financial problems are a way of life in America right now. We do not want to think about finances and definitely do not want to deal with them when the economy is not going well. Luckily, Americans are finally being honest with themselves and realizing that they do, in fact, have bad credit. Having bad credit can make it difficult when buying a house or refinancing a mortgage.
Mortgage lenders are analyzing credit scores much more closely in the current economic environment due to the Subprime Crisis. Lenders realize how important it is to provide funding only for those who will pay it back. With this knowledge, improving your credit score may be the biggest financial move you make in the next decade, other than buying a house of course.
Americans are currently carrying an average of $8,000 in debt and this number is rising. It is predicted that the number could rise drastically as Americans are resorting to buying on credit during the economic crisis we are currently in. To get those historically low mortgage rates that are being advertised your credit score must be 720 or higher. If your score is above this level, you will qualify for the best loan programs and the lowest rates, all things being considered. This will make buying a house much more affordable and easy.
If you are below the 720 level, the mortgage interest rate you receive will be a bit inflated. Expect a rate about .15% to .2% higher if you are in the 700 range. If average mortgage rates are 5.5%, you are likely to get an offer around 5.7%. While this may not seem like a big difference, it can end up being about $100 more a month on a $200,000 mortgage loan.
As your credit score decreases, your mortgage interest rate increases. Remember, lenders have to worry about risky borrowers defaulting as they have made bad financial decisions in the past. If your credit score is in the 620 range, expect to pay around 2% more in interest on your mortgage. This is a HUGE difference when it comes to the monthly payment. You could end up paying over $300 more a month and a total of $100,000 more in interest for a $200,000, 30 year mortgage loan.
As you can see from the graphic above, a bad credit score can greatly affect your mortgage interest rate when buying a house.
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» Church of Cowherd » Buying a House with Bad Credit » Bad Credit Mortgage on
Thu, 26th Feb 2009 6:52 pm
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