For as long as we can all remember, the housing market has worked pretty much the same way. But, of course, Democratic President Joe Biden just can’t leave well enough alone, and so he’s making a few major changes.
As you know, the same basic rules apply when it comes to any type of loan: The higher your credit score is, the lower your interest rate typically is.
This, of course, is because your credit score is basically proof of how likely you are to pay back your loan on time. Essentially, it determines how much of a risk you are to banks and other lending institutions.
And so, those with higher credit scores, those with a history of paying things off on time and making sound financial decisions, are rewarded with lower interest rates because banks feel they can trust those individuals more.
In contrast, those with lower credit scores typically pay a higher interest rate to ensure that banks get their money back quicker.
However, it’s become apparent that Biden and his administration don’t exactly like this long-held practice.
Well, apparently, it’s unfair to those with lower credit scores and incomes. And so, Biden is trying to change things to make homeownership more “equitable” to all, especially first-time home buyers.
Should you have a higher credit score, you actually pay more in interest. Lower credit scores, on the other hand, get a break and are rewarded for not-so-great decisions with lower interest rates.
If it seems ass-backward, you aren’t the only one.
Nevertheless, the change officially and quietly went into effect on May 1.
So, if you have a credit score of 740 or higher on a loan of $500,000, the going rate used to be about 0.25% in interest fees ($1,250.) Now, however, your rate could be upped to as much as 0.375%, which is $1,875, for the same loan.
Those with much lower credit scores will pay much lower rates and fees.
Additionally, if you can put down 15% to 20%, your interest rates and fees will also increase.
Thinking about refinancing? It’s going to be more expensive.
Now, a bill is moving through Congress right now that, if passed, could reverse this new Biden policy. But it’s not gone through yet. Let’s all hope it does soon. Or homebuying, as we know it, will be forever changed.