Is the American Dream Slowly Fading Away?

A new study shows that about one-third of Americans would not qualify for a mortgage loan if they applied for one today. That’s bad news for the housing market which has millions of vacant homes just sitting in neighborhoods waiting for someone to move in. Unfortunately, the dream of home ownership is only available to a fraction of the potential home buyers despite some of the lowest mortgage rates in history and competitive pricing of the available homes.

Potential home buyers who have credit scores of 620 and below were not likely to qualify for even a common 30-year fixed rate mortgage. This is true even the home buyer can put down a 15 or 20 percent down payment for the home. According to some analysts in the mortgage industry, the tighter credit restrictions are no surprise as banks are trying to keep a cap on the demand for housing while only lending money to home buyers who have shown a strong willingness to pay their financial obligations on time each month.

In order to qualify for the lowest mortgage rates available, borrowers must have a credit score of at least 720. With a credit score this high, borrowers can take advantage of the 4.3 percent mortgage loan for a 30-year fixed rate term. Few people have credit scores that high especially with all of the financial problems that have been going on in the United States in the last couple years. But for those who fall in the mid-range area with scores between 620 and 719, the mortgage rates aren’t too bad. Many of these people will qualify for a rate between 4.44 and 4.73 percent for the 30-year fixed rate mortgages.

Those who qualify only for a higher interest rate can, however, refinance their mortgage after a couple years of paying their bills on time and increasing their score. For each increase of 20 points on your credit score, your annual percentage rate goes down by about 0.12 percent. That means that if you put 20 percent down on a $300,000 home, you could save nearly $6,500 over the course of a 30 year fixed rate mortgage.

Now is the time to start improving your credit score if you are thinking about getting a mortgage. The rates may never be this low again so it is important to take advantage of them while you can. Just be smart with your money and take some initiative to pay off some debts and make sure you pay your current bills on time, too. You could save thousands of dollars in the long run.