CHAPTER 3
GETTING THAT FIRST HOME LOAN Venturing into the housing market can be intimidating for anyone. Since the housing market crashed in 2007, the road to recovery has been rather uneven. This includes very tight lending, new requirements, and buyers held back by increasingly strict lending standards. There are signs of improvement in the housingmarket, though. Banks are relaxing previously strictminimumrequirements, and lenders are offering mortgages with down payments at lower rates. This may very well be a good time to consider jumping into themarket. With the housingmarket heating up and consumers ready to buy a home, it is time to beginpreparing for the road that lies ahead of you. THE CRITICAL IMPORTANCE OF A GOOD CREDIT SCORE Your credit health is the most important factor in deciding what interest rate youwill pay on yourmortgage, and the difference could be substantial. Your credit rating’s impact is so significant that the difference could be in the thousands of dollars, just from a few points on your credit score. Consider this example. Let us take $178,500 as the price of a home. Two buyers buy at that price and both take a 30-year fixedmortgage.They both put 20% down. One buyer has a low credit score of 620, while the other has a higher score of 760. The one with the poor credit score will end up paying an interest rate as much as 3.5% to 5% higher. This difference could translate into hundreds of dollars per month in mortgage interest payments and a difference of $59,000 or more over a mortgage’s lifetime. The factors used to calculate an individual’s credit score are credit payment history, current debts, length of credit history, credit type mix, and frequency of applications for new credit. The different scoring systems
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