You’ve seen the mortgage financing ads quoting a certain rate, such as 2.99% on a fixed rate mortgage, but your lender is quoting you 4.00% for that 30 year fixed rate loan. Is your lender gouging you?

Or, when you chose your lender, they gave you an initial quote for that 30 year fixed at 3.75% and no points. You choose that lender, and shortly thereafter, the lender quotes you a far higher rate. Are you being hustled?

Or, you’ve got a solid 20% cash down payment but now your lender is saying you’ll have to switch to a FHA loan rather than conventional. Is this bait and switch?

We know there are a few lenders who may take advantage of you, but the answers to the above frustrations are all probably no, you’re not being gouged, hustled, or bait and switched. More likely, that 2.99% fixed mortgage is a 2.99% fixed rate loan, but it’s really a “fixed/variable,” as in a fixed rate, amortized over 30 years, but in 5 years it adjusts to a variable rate mortgage.

In the case of the lender who quoted you 3.75%, they may have been quoting you based on top FICO scores of 780 or higher. When the lender actually pulled your credit and your FICO’s were lower your rate was now quoted higher based on perceived higher risk to the lender.

And the lender who’s now saying you may need to do an FHA loan rather than the conventional even though you have a strong down payment, may be suggesting that because you’re still not qualifying for the conventional, but would qualify for the FHA as their qualifying standards are more lenient.

So, how important is having stellar credit when looking to finance a home purchase? As the above examples show, you may be able to get a loan, but unless you have good credit, you will pay more for that loan as in a higher interest rate and/or higher loan costs. You also may not qualify for as high a mortgage amount which means your price range will be less, therefore you get less house or less neighborhood, or less whatever.

Today we’re seeing a number of credit issues affecting buyer/borrowers. Student loan debt, poorer credit due to fiscal mismanagement, and folks still in the “Penalty Box” waiting period of having had a short sale, foreclosure, or bankruptcy.

There is financing available for folks who have had a short sale or foreclosure and don’t otherwise qualify for a loan. These are called “Portfolio” loans. Local community banks may have these loans available, but one such loan quote we got for a buyer recently was requiring a 35% cash down payment, 10% interest, all due and payable in two years. The good news is that if you have to have the house, you can get it and then refinance in two years when you come out of the “Penalty Box.” This is risky however.

We’ve talked before about reasons why the market is not more robust with rates as low as they are, and I tended to blame the Millennials’ generation for not buying, but credit obstacles are probably the main reason. As these issues

For better or worse, I think the new congress, commencing in January will be more pro-active in setting policies that could lighten the loan requirements thereby increasing the number of qualified buyers in the marketplace. Time will tell.

(Next week, we’ll look at how you can best discern if you’re getting the best rate and terms available from your lender)