Recent studies have revealed that 29% of U.S. citizens have F.I.C.O. scores less than 580. The FICO score is one of the chief tools used by lenders to determine ones worthiness to borrow. A low credit score indicates high risk to banks. Mortgage lenders don’t lend money to people wilth low credit scores, unless the interest rates are incredibly high. Basically, this tells us that almost 1/3 of Americans have credit scores too low to qualify for a home loan.
Many people got bad credit because they bought homes that they couldn’t afford. A lot of these people saw their credit scores drop because they missed mortgage payments and received foreclosure notices. Some of them chose to allow their homes to foreclose by strategic default. These strategic defaulters owed far more on their homes than they were actually worth, and it was financially better for them to sacrifice their credit.
A long term negative effect of more people with bad credit, is that there will be less eligible home buyers in the future. It will probably be atleast seven years before anyone who has gone through foreclosure will be able to qualify for a mortgage again. This represents a future decline in the demographics of home ownership. This will decrease the percentage of homeowners and increase the number of renters and people who live with family. Recently, there has been a much higher percentage of homes built as accessory dwellings with a second kitchen. Since the recession, there have been much greater numbers of multi generational households, where extended family all lives under the same roof.
With less people being able to qualify for mortgages, it will be harder for home owners to sell their homes. This will keep housing markets soft from Kennesaw Georgia Homes to Real Estate in Brigham City UT. The housing market is primarily what caused the recession, and its recovery is essential for the overall economy. Today’s low FICO credit scores just might keep real estate prices down for many years.
