Stressed over credit score
Will it affect my ability to buy a home?
According to the article “Excluded from the Financial Mainstream: How the Economic Recovery is Bypassing Millions of Americans, Findings from the 2015 Assets & Opportunity Scorecard” the household income poverty rate is at 14.7 percent although fewer people are unemployed. 44 percent of American households are “liquid asset poor” meaning they have less than three months’ worth of savings. 56 percent of consumers have subprime credit scores, meaning they wouldn’t qualify for financing at prime rates.
How does the above affect our ability to buy a home? The first two statistics are easy to address. The overall costs of homeownership make it difficult to purchase a home. Consumers with an income equal to that of the poverty rate will probably have no savings to use as a down payment. They will also be unable to address home maintenance once purchased.
The extent to which your credit score affects your ability to buy a home it may not be so cut and dry. Your credit score is a snapshot of what lenders would consider to be your risk level. The higher your score the lower a risk you are to the lender. In addition, your credit score help lenders determine what interest rate you will pay, prime or sub-prime. For example, the current Prime rate is 3.5 percent, in comparison a Sub-Prime rate can run anywhere from eight percent to ten percent. How does this affect your ability to buy a home? Based on a $100000.00 loan at a 30 year fixed rate the difference in interest paid between 3.5 percent and eight percent is $100,165.82. In addition, a lower credit score may require you to provide more money down toward your home purchase.
Should you stress over your credit score? Ask yourself this question, are you going to make a major purchase, such as a home, over the course of the next year or two where your credit score may be a qualifying factor? If the answer is no, then relax and take a deep breath, time is on your side. Make it a goal to improve your credit score over the next couple years. Make your bill payments on time, don’t generate any additional debt, and work toward generating positive financial health. A great place to start would be to visit the MI Money Health website and taking the financial health survey.
Michigan State University Extension has HUD/MSHDA certified housing counselors on staff to assist with the difficult process of foreclosure. To find a counselor near you visit the MI Money Health website or call your county extension office. Michigan State University Extension has released a new toolkit for homeowners who are experiencing or have previously experienced foreclosure. This toolkit will equip these individuals and families with tools to help them recover their financial stability, in the case that a recovery of their home is not possible. The toolkit is available to download free at the MI Money Health webpage.
Michigan State University Extension offers financial management and home ownership education classes. For more information of classes in your area, go to either the events webpage or the MI Money Health website.