Everyone knows buying a home without a great credit score is more expensive. Everyone knows the worse your credit is, the more expensive loans are. But by how much?
A new study from Zillow found that homebuyers with “fair” credit (580 – 669 FICO) on average pay an additional $300 on their monthly mortgage compared to buyers with “excellent” credit (760 and 850).
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Because of interest, that means people with lower credit scores pay about $103,626 more by the end of their mortgage.
There are private islands that cost less than that.
“If you find you have low credit, take realistic steps to improve your credit score by doing things like disputing possible report errors and paying down as much debt as possible,” says Zillow’s VP of Home Loans, Libby Cooper. “This could increase the amount of home loan you qualify for.”
But if you don’t have time to start your credit journey, there are better options out there. Fixed-rate mortgages just might not be your best choice.
“Good” loans for your “poor” credit score
If you have a fair credit score or lower, a traditional mortgage probably isn’t for you. Someone with a fair credit score will pay about $1,826 on a traditional mortgage, while a buyer with an excellent score will only pay $1,538.
Although the 30-year mortgage is the most common loan, it isn’t the only one. An adjustable-rate mortgage (ARM) is better for someone with a score in the 600s. ARMs will often give you three to five years with a fixed interest rate. After that initial period, your interest rate will fluctuate depending on the economy.
Your lender will look at a variety of federal indexes. It’s really great for the borrower when rates are low, but they can always skyrocket up. If all goes well, the borrower can save a lot of money in interest.
An FHA loan has looser financial requirements. This is a better choice for someone with a credit score in the 500 – 600 range. They tend to have a 560 minimum. An FHA is insured by the Federal Housing Administration, so if a borrower defaults on their loan, the administration covers the lender’s costs.
To get one, you’ll have to go through an FHA-approved lender, make an upfront payment for 10 percent of the cost, and pay for mortgage insurance.
How to find your best option
Navigating all of the options out there can be overwhelming, so the first thing you should do is contact a housing counseling agency that has been approved by the Department of Housing and Urban Development (HUD). A counselor can sit down with you and show you the best choices for you in your area.
People with bad credit who are looking for better loan options often have to go to a homebuyer workshop in order to qualify. A housing counselor can help you with that too – and the workshops are usually free.
After the workshop is completed and you have a certificate, you can start applying for FHA loans.
If you still aren’t able to qualify for a loan, that means it’s time to repair your credit. And credit report errors do happen. Start by getting your free credit report from annualcreditreport.com and check that everything is accurate. Use the report to get a full picture of what is bringing your score down.
“When you are thinking about buying a home, the best first step you can take is to fully understand your financial picture, what you can afford, and your outstanding debts or obligations,” Cooper says.
This article originally appeared on Debt.com and was syndicated by MediaFeed.org
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Does refinancing hurt your credit score?
Most people want to refinance their student loan to help their financial situation. So, the possibility of hurting your credit by going through the process of refinancing is alarming.
Fortunately, any harm done to your credit in applying should be pretty minor–and temporary. It’s just a part of going through obtaining a loan.
As for whether student loan refinancing will inflict any other kinds of damage to your credit, it definitely shouldn’t. To make sure your credit score is safe, learn more about how refinancing works and how you can best protect yourself.
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A credit score is the number assigned to you by any of the credit rating agencies. Those agencies include Experian, TransUnion, and Equifax.
Whenever someone looks at your score–a lender considering whether to give you a loan, a landlord deciding if you’d make a good tenant–they’ll see a number that tells them how good a risk you are. Credit scores are like a snapshot of your financial health.
If you have a good credit score, you’re going to get more green lights to what you want: a loan with low interest, an affordable car insurance policy, a high-limit credit card. On the flip side, if your score isn’t good, you’re going to be turned down for loans, lose out on homes and cars, and only be able to get high–interest credit cards.
Judgements vary, but anything 700 or above is considered a strong score. Your credit score is influenced by:
- On-time payments for bills
- Steady (but not excessive) use of credit
- History of paying balances in full
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It’s all about choices in paying off student loans. With student loan refinancing, you take your existing loan, one you’ve been paying down, and approach a private lender to ask for a new student loan. The goal is to get a better deal: lock into savings-producing lower interest rates, sign up with more favorable terms. The lender–a bank or other financial institution–basically buys the old loan and issues a new one with you.
Student loan debt has reached staggering amounts in the U.S.
Generally, people refinance a federal student loan issued while they were in college and take out a private loan with lower interest. It should be noted that with student loan refinancing, if you do so, you lose the protections of federal loan forgiveness and cancellation programs.
Damir Khabirov / istockphoto
So, to dig deeper into the question “Does refinancing student loans hurt your credit?” we’ll scrutinize the loan application process. The bank, credit union, or online lender you’ve gone to will perform what is known as a “hard credit check” when you apply for a loan. The intent is to see your number and the history behind the number.
Why does a hard credit check affect your number? After all, you didn’t do anything “wrong.” One explanation is that a hard inquiry means a lender is assessing your credit report and that creates uncertainty. You may be trying to get a personal loan, a student loan, or a mortgage. Something could be about to happen that could shake up your financial “health.”
simonapilolla / istockphoto
Sometimes this hard check doesn’t do anything to your credit. But other times the check will lower your credit score. How much? Occasionally as much as 10 points. More often 5 points or less. And fairly soon your score will return to where it was before the hard check.
The problem is if you submit multiple full applications for loans over the course of several months, your credit score could take a bigger hit. The reason is this suggests more volatility. So, if you put through these full applications over a long stretch of time, then the question of “Does refinancing student loans hurt credit?” carries the answer “Yes.”
There are proactive steps you can take to make sure your credit score makes it through the process in good shape.
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You can pre-qualify for a loan offer, and it won’t affect your score. Take advantage of that when you decide who you want to put in an application with. A full application is the only type that will nudge down your credit score. So try to submit to the lenders you consider your best options.
Also, and this is key, try to apply with your chosen few lenders for a student loan within the same month. That keeps the damage to your credit score to a minimum.
Note: Your FICO score won’t be significantly hurt by multiple inquiries if they occur within a 30-day window. Your Vantage credit score may have a shorter window of 14 days.
Anhelina Pikas / iStock
When you’re trying to refinance, your money moves are under a spotlight. You need to be meticulous about continuing to make payments on your loan throughout the process. If you are late with a payment now, your credit score might suffer just when you want it to be perfect.
Keep on top of the payments for your original student loan until you are totally sure that the refinancing process is complete.
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When you analyze the question of whether refinancing student loans hurts your credit, you need to acknowledge the importance of making payments on time.
Yes, the application process could be finished, but any late payments will be reported to the credit agencies and lower your score. When choosing the terms of the loan–which is how long you will need to pay it off–make sure the repayment isn’t going to be too hard for you to cover. When refinancing, some people choose a shorter loan term and higher payments to get their loan over with. But the most important thing is making payments on time. Then refinancing is unlikely to hurt your credit.
Be sure to weigh this priority when you study the pros and cons of refinancing student loans.
tommaso79/ iStock
How will refinancing affect credit score? When you refinance your student loan, the private lender will do a hard check of your credit, which could cause a dip in your rating for a short time. If you apply to as few lenders as possible and keep it within a short time frame, that will minimize the chance of any credit damage. And be diligent in timely loan payments.
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This article originally appeared on LanternCredit.com and was syndicated by MediaFeed.org.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)
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This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (www.nmlsconsumeraccess.org)
All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.
*Check your rate: To check the rates and terms you qualify for, Lantern and/or its network lenders conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.
Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Personal Loan:
SoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Personal loan offers provided to customers on Lantern do not exceed 35.99% APR. An example of total amount paid on a personal loan of $10,000 for a term of 36 months at a rate of 10% would be equivalent to $11,616.12 over the 36 month life of the loan.
Student Loan Refinance:
SoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Even Financial Corp. (“Even”). If you submit a loan inquiry, SoFi will deliver your information to Even, and Even will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lender’s receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Even, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Even’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
Student loan refinance loans offered through Lantern are private loans and do not have the debt forgiveness or repayment options that the federal loan program offers, or that may become available, including Income Based Repayment or Income Contingent Repayment or Pay as you Earn (PAYE).
Notice: Recent legislative changes have suspended all federal student loan payments and waived interest charges on federally held loans until 05/01/22. Please carefully consider these changes before refinancing federally held loans, as in doing so you will no longer qualify for these changes or other future benefits applicable to federally held loans.
Auto Loan Refinance:
Automobile refinancing loan information presented on this Lantern website is from Caribou. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including: you must meet the lender’s credit standards, the loan amount must be at least $10,000, and the vehicle is no more than 10 years old with odometer reading of no more than 125,000 miles. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending Disclosure:
Terms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
Life Insurance:
Information about insurance is provided on Lantern by SoFi Life Insurance Agency, LLC. Click here to view our licenses.
fizkes / istockphoto
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Featured Image Credit: scyther5/iStock.
