Many people applying for a mortgage don’t realize just how expensive it can be to have poor credit. They often rush into buying a home and assume that if they’re approved for a mortgage they’ll be good to go. The reality is that taking a few months to improve your credit score can result in savings of more than $60,000. Read on to learn more.
Consider this example
Let’s imagine you’re looking to borrow $200,000 for a home. You get a fixed rate 30-year mortgage. If you have excellent credit, which is considered a score between 760 and 850, you may pay an interest rate of 3.307%. That leaves you with a monthly payment of $877.
On the other hand, a person with lower credit, let’s say a score between 620 and 639, could have an interest rate of about 4.869%. Their monthly mortgage payment would be $1,061. That’s a huge cost every month – almost $300 – for the exact same thing: a $200,000 home.
While those numbers are shocking when you think about the added expense per month, consider what you’d pay over the lifetime of the loan: $66,343 more! That’s an incredible amount of money that’s essentially just being thrown away.
Many potential borrowers can’t get approved for mortgages
Even as the housing and mortgage markets are stabilizing, many borrowers with decent credit either can’t get approved for a home loan or are charged a new and ever-expanding list of fees and additional costs. It’s true that lending standards continue to loosen the further away we get from the recession that started in 2008, but it’s also true that this is mostly true for buyers who have credit scores of at least 700.
On the other hand, a borrower with credit dings or who has a down payment of less than 20 percent may not have access to federally backed loans. These loans used to be mainstream, but now lenders turn them towards FHA (Federal Housing Administration) mortgages, which end up costing much more.
These loans are designed for those with low incomes or bad credit, but even those with fair to decent credit scores of 620 to 700 often can’t quality for the low-cost mortgages backed by Fannie Mae and Freddie Mac. In fact, only about 1 in 6 of the loans written to Fannie Mae standards currently goes to a middle-tier borrower.
What can potential borrowers do to decrease their interest rates?
It doesn’t take as long as people think to raise their credit score. In fact, the average client of Leaf Credit Solutions sees their score improve 80 – 127 points within the first 60 days of enrollment. Contact us today to find out how you can have these incredible results.