Those with Poor Credit Routinely Pay More to Obtain a Mortgage
One of the most important uses of credit is in qualifying for a bank loan for the purposes of purchasing a home. While many kinds of purchases can be readily made with cash, including automobiles and big box electronic items, most Americans still rely on a mortgage loan to purchase their first homes. With the recent changes in lending requirements as it relates to qualifying for a bank mortgage loan, many people wonder if their credit scores are up to par. Not surprisingly, those who do not have excellent credit pay far more to obtain a mortgage.
Those applying for mortgage loans in today’s market have credit scores averaging in the range of 730. This qualifies as “excellent credit,” and is far better than the average scores seen just a few years ago during the height of the Great Recession. The good news for those with excellent credit is that interest rates in the mortgage market are currently still near historic lows. But, people those who suffer from bad credit are feeling the pinch. For example according to this article, those with relatively poor credit, who nevertheless qualify for a mortgage loan, can expect to pay up to $2,000 per year more in finance charges than those who have good credit.
Additionally, when a poor credit applicant decides to obtain a mortgage through the FHA mortgage program, a program which has a lower qualifying credit score requirement then those imposed by major banks, they may find themselves being charged so-called private mortgage insurance (PMI). PMI is a kind of insurance which is pooled together and used to offset the costs of any loans which go delinquent or into foreclosure. The costs of paying PMI depend on the loan amount of the mortgage, but can generally range from $1,000 to $2,000 per year.
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