Friday, May 25, 2012


How does a real estate bubble begin? Historically, lax credit standards are the primary reason.

The Federal Reserve's making some changes to avoid another real estate bubble as it has tightened mortgage requirements. Click here for the new report which indicates that lenders have been tightening the reigns.

Most lending institutions are less likely to offer loans to people with a FICO credit score of 620 along with a 10 percent down payment than they were in 2006, according to the report. Lenders were also less likely to do so even for those with a score of 720.

Stricter standards have drawn the attention of Ben S. Bernanke, the chairman of the Federal Reserve, who last week told a bankers group that “current standards may be limiting or preventing lending to many creditworthy borrowers.”

For those with lower credit scores , the math is cash: A borrower with a credit score of 720 can expect a rate of 3.70 percent on a 30-year, $300,000 fixed-rate mortgage, according to, while someone with a score of 620 to 639 can expect a 5.07 percent rate — or an extra $242 per monthly payment.        

If you plan to purchase a home, or anything else for that matter, you may want to clean up your credit score prior to taking out the loan.

If Bernanke and the Federal Reserve were to reverse their current stance toward a looser policy, we may be moving towards another bubble. Therefore it would be best to get your score in order today and use your credit before everyone else does or you may find yourself buying to late.

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