Let me give you a short list of how much low credit scores can cost when it comes to a home loan:
1. You may never own a home, again, or you will have to wait, maybe for years
This is a very real possibility whether your low credit scores are because of the recent economic downturn or because you have always had low scores. Lenders have continued to tighten up on lending guidelines and they probably will tighten up even more.
2. You will pay higher interest rates or fees
Fannie Mae and Freddie Mac implemented a "Loan Level Price Adjustment Fee" program in 2008. So if you wanted to do a conventional loan, putting down 20% on a purchase, or were refinancing at a loan to value ratio of 80% you would be subject to the following extra fees based on your credit scores:
620- 639 3.00%
640-659 3.00%
660-679 2.50%
680-699 1.50%
700-719 .750%
720-739 .250%
This means that on a loan of $200,000.00 you would have to pay as much as $6,000.00 more in costs or take a higher interest rate.
If you wanted to refinance you home and take cash out, you would add even more fees to the loan. These are the fees that you would add to the fees listed above:
620- 639 2.75%
640-659 2.25%
660-679 1.50%
680-699 1.375%
700-719 .750%
720-739 .750%
This means that on a cash-out refinance loan of $200,000 (at 80% LTV) you would pay as much as $11,500.00 in extra fees or take a much higher interest rate.
3. You will pay more for Private Mortgage Insurance(PMI) (If you can even get it)
If you have to do a conventional loan with less than 20% down, you will have to have PMI. The lower your credit scores are, the more PMI you will have to pay.
There is hope! I have helped many people increase their credit scores over the years so there is light at the end of the tunnel. If you work with someone who knows what they are doing, you could save thousands of dollars.
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