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Better Scores Needed For Home Purchase

By Sally Maison
Published: Tuesday, October 6th, 2009

Housing experts say that now is a good to buy a home or apply for a mortgage refinance since economic recovery is well on its way. But other experts say that banks still remain on the defensive, which means that now is not yet the time for consumers with low credit scores to celebrate.

Better Scores Needed For Home PurchaseJust this February, another Federal bill was signed which aims at helping first-time homebuyers get the home they have been longing for. Analysts say that the $8,000 tax cut did provide enough stimulus to give consumers their homes and for companies to get back lost profit. However, not everyone got the home they wanted, and low credit scores remain the primary culprits.

In 2004, seven of every ten mortgage applications were approved. Last year, there were only five out of ten. For the last thirty years, the average mortgage rate remained stable at 5.04 percent until it fell to 4.78 percent in April this year. Specialists say that recent statistics show how creditors have drastically tightened their standards as the global freeze heightened. They add that tighter lending practices is also a response to the new credit law, which creditors believe could trim down their profits hugely. 620 used to be a good score, according to specialists. Now, consumers with that score are 30 points short of getting a mortgage refinance; at least for most creditors. Experts say that a score above 720 is a safer bet for lenders, which is why they encourage consumers to pay off their balances and avoid racking up too much debt which may become unmanageable in the future.

However, market analysts fear that some consumers are relying too much on Federal aid instead of actually making an effort to boost their credit scores. The Federal Reserve provided $340 billion worth of low-cost loan in an effort to lower the credit standards of banks. It also purchased mortgage-backed securities worth $625 billion which the Fed Reserve believes could lower interest rates on housing loans. Experts are now wondering if Americans could wean themselves from Federal aid, considering that is has almost singlehandedly carried US economy throughout recession. They add that if reliance on government could only lead to further economic instability.

Instead of waiting for another Federal bill, experts advise consumers to remain prudent in their debt practices and to be more mindful of their credits scores since no one knows how long the economy will remain intact. They add that banks are still reluctant in granting loans to people with poor credit scores, so consumers are advised to keep their figures high if they do not want another loan denial.

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