How Credit Scores Affect Your Credit (2)
If you have a score lower than 680, it’s not impossible to get a home loan, but your interest rates and down-payment requirements may go up substantially. Federal Housing Administration (FHA) and Veterans Administration (VA) guaranteed loans have programs for lower credit scores, but the interest rates and/or costs jump 1 to 3 percent higher.
For example, when Ron and Wendy applied for a $225,000 mortgage, they didn’t think a couple of thirty-day late payments on their two maxed-out Visa cards would cause a problem. But when their lender called and told them she could get an approval only with an FHA mortgage owing to their credit score, their costs escalated. This meant, in real dollars and cents terms, that their low credit score would cost Ron and Wendy the following:
- Two discount points, or $4,500.
- $151.94 more a month in payments, or about $1,800 a year until they can improve their credit and refinance.
However, because interest rates may go up in the future, and the buyers might incur more costs in refinancing, their first-year costs of $6,300 might continue to balloon. The lesson here is that you should get your financial and credit ducks in a row before you shop for a mortgage.
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