About 29% of U.S. citizens have a credit score of 580 or less. FICO scores are one of the most important factors required for getting home loans. Low credit scores are earned by not making payments; Banks are not willing to lend money to people with a past history of not meeting their financial obligations. Banks will not lend to people with low credit scores, unless the terms are in their favor. What this means is that 29% of US citizens have credit scores so low, they will be unable to get mortgage financing to buy real estate.
Many of these people have such low credit scores simply because they purchased homes with mortgages they couldn’t afford, and then failed to pay the loans back. These people with the now bad credit, missed payments, had short sales, or were foreclosed on. Many foreclosure victims actually voluntarily stopped making their monthly payments even though they could afford it. These people who foreclosed by strategic default, allowed their credit score to be destroyed because they owed thousands more than their homes were worth.
The problem with so many people having the poor credit is that this will limit future home purchases. It will probably be atleast seven years before anyone who has gone through foreclosure will be able to qualify for a mortgage again. This represents a future decline in the demographics of home ownership. There will be less home owners, more renters, and more multi generational households. Home builders have been building more homes with “mother in law” apartments. The recession has created a higher percentage of multi-generational households.
With less people being able to qualify for mortgages, it will be harder for home owners to sell their homes. We will likely see more downward pressure from Kennesaw Georgia Homes for sale to Homes in Visalia California. The slow real estate market will also make it harder for the overall economy to recover. Home prices may not increase for a long time, in large part thanks to so many Americans with bad credit scores.
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