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“Bad”credit doesn’t always mean a “bad” rate

“Bad”credit doesn’t always mean a “bad” rate

It’s no secret that navigating the home financing process is no picnic, but for borrowers with “bad” credit, the journey can be particularly stressful and frustrating. Here’s the good news: bad credit borrowers can still secure low rates, and in many cases do indeed get lower rates than some of their higher credit score holding counterparts.

It’s a common, and costly, assumption that rates are roughly the same across mortgage lenders for the same borrower. The graph below illustrates just how wide the rate spread can be, for both borrowers with bad credit and those with strong credit.

The two red lines represent borrowers with low credit, and the two green lines represent borrowers with high credit.

Interest rates offered to low credit borrowers varied between 3% to 4.5%. For those borrower with good credit), rates varied between 2.5% - 3.5%. That dotted red line below the solid green line? Those are rates that low credit borrowers were offered that were better than their counterparts with good credit scores.

The takeaway here is that rates vary widely for all borrowers and finding the best deal for your unique financial profile and borrowing scenario is within your control.

The only way to find a great rate on your mortgage is to get multiple offers from lenders and use those offers to negotiate. Be sure to compare beyond just rate, as well, and look at total costs – that means closing costs and points – so you’re able to get an “apples-to-apples” view of your options.

While mortgage shopping can be time consuming, the financial benefits of finding a rate on the low end of your range are massive.

Bottom line: a mortgage is typically the largest financial transaction you will make in your lifetime, whether you’ve got good credit or bad. By evaluating your entire financial picture and effectively comparison shopping, you can take control of the home financing process, no matter what your credit score.

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