By taking out debt consolidation loans, consumers can get a handle on their overwhelming credit card debt. Unfortunately, taking out these loans can also hurt these same consumers when they’re ready to take out a mortgage loan. There’s a reason for this: Working with a debt consolidation company will lower the credit scores of consumers. Mortgage lenders rely heavily on these three-digit scores to determine if borrowers are a credit risk or are likely to make their mortgage payments on time. Consumers with low credit scores, under 620, are considered high risk to default on their payments. Those with scores of 720 or higher will usually qualify for the best mortgage interest rates.
Missing the Housing Opportunity?
This is a great time to buy a house. Consumers with debt consolidation loans, though, may miss out. Freddie Mac, the mortgage finance giant, reported that the average interest rate on a 30-year conventional fixed-rate mortgage fell to 4.89 percent in May. That’s a terrific rate, and is down significantly from the average rate of 5.10 percent in April. At the same time, homes across the country are cheaper than ever. The National Association of Realtors reported that the national median home price for existing homes – which includes single-family homes and condominiums – stood at $179,600. That’s extremely affordable compared with just three years ago. Buyers who want to nab more home for less money, then, can do this in the current market.
Challenges
There are challenges, though. The national unemployment rate is still near 10 percent. That means a lot of potential homebuyers are out of work. Others have seen their annual incomes plummet thanks to the unpaid furlough days that their bosses have forced upon them. Many of these consumers have run up credit card debt during and after the Great Recession. Many of these are now working with a debt consolidation company to deal with that debt. As you can guess, mortgage lenders aren’t usually too fond of working with consumers who’ve had to turn to debt consolidation to deal with their debt. Lenders look at this as the sign of consumers who haven’t managed their finances particularly well.
Debt Consolidation Review
Consumers need to take a debt consolidation review before deciding whether the move is right for them. This means that they need to consider all their alternatives for erasing their debt. If there’s an option that allows them to reduce their outstanding debt without harming their credit scores at the same time, that’s the choice that consumers should make.