The High Cost of Poor Credit

With lenders reverting back to more traditional type of lending and underwriting guidelines becoming stricter, now more than ever your credit score is becoming increasingly more important.

Your credit scores are becoming increasingly more important in a wide variety of areas. Credit card companies can increase your interest rate and insurance companies can increase the premiums they charge due to plunging credit scores.  More importantly, it may have a greater impact on whether or not you have the ability to obtain financing for a new home or refinancing your existing home.

A credit score of 720 on a scale of 300-850 FICO scale is considered good and 620-680 FICO score is considered mediocre. As lenders and other financial institutions revert back to more traditional lending practices, your credit score is taking on a more important role than ever before. In order to show you an example of what I mean please take a look at the following example:

Single Family Residential Purchase

Primary Residence

Conventional 30 Year Fixed

Full Document

Sales Price $200,000

Loan Amount $160,000

80% Loan To Value

Debt-To-Income 41%

With a credit score of 625 your interest rate would be 7.0% and your monthly payment excluding taxes and insurances would be $1064.48

With a credit score of 720 your interest rate would be 6.0% and your monthly payment excluding taxes and insurances would be $959.28

The difference per month is $105.20

The difference per year is $1262.40

As you can see from the above example your credit score has a direct impact in how much of your hard earned money you are keeping in your pocket. Furthermore, underwriting guidelines are limiting the availability of mortgage insurance if you intend to borrow more than 80% of the loan-to-value of your home with credit scores less than 660.

Now more than ever, it is extremely important to know what your credit scores are and how to go about increasing your credit scores if you fall below 720. Prior to researching mortgage lenders do a little research on your own and find out what is on your credit report and pay the extra money to see your credit scores. It could save you thousands of dollars over the course of mortgage loan.

For further information on new home purchases, the sale of your existing home, for sale by owner or refinances please visit Midwest Mortgage Solutions of Missouri, at: http://www.midwestmortgageresource.com or http://www.mwmortgagesolutions.com

This article is brought to you by Tom Wurdack and Midwest Mortgage Solutions of Missouri. Tom Wurdack is a licensed mortgage broker in the state of Missouri, with over 10 years experience in the real estate industry. He is best known for his ability to place his clients in the perfect mortgage solution. Feel free to contact him at tom@mwmortgagesolutions.com.