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Americans Misunderstand How Bad Credit Affects Mortgage Qualifications

by Broderick Perkins

What's with American housing consumers' lack of knowledge about mortgages? Not two months ago Chicago-based Bank One reported that one in three home owners earning $50,000 or more believe the interest on equity loans isn't tax deductible or they don't know whether equity loan interest is tax deductible.

A new study now says half of American adults also misunderstand how bad credit affects their ability to qualify for a mortgage.

Fannie Mae's 1999 National Housing Survey reveals a more tolerant mortgage marketplace where barriers to home ownership have fallen since the early 1990s, but the organization's eighth annual survey also shows unexpected ignorance about bad credit.

"The high percentage of Americans who don't connect paying bills late with the potential for problems later when they try qualifying for a mortgage is a new and very disturbing trend, and we must find ways of reversing it," said Franklin D. Raines, chairman and chief executive officer of Fannie Mae.

Only 15 percent of those surveyed said having high enough of a credit rating would be a major obstacle to home ownership for them, yet the study also revealed a lack of information about how to maintain a good credit rating.

Thirty one percent of those surveyed said being late paying utility bills three times in the past year would be no problem at all in qualifying for a mortgage.

Forty one percent said it would be a major problem, 32 percent said it would be a minor problem and 18 percent said it would be no problem at all if he or she was more than 90 days late, three times or more paying a utility bill.

African Americans and Hispanics were more likely than whites to understand the consequences of late bill paying. While 62 percent of blacks and 46 percent of Hispanics understand it would be a major problem to be 30 days late paying a utility bill three or more times, only 38 percent of whites agreed.

Fannie Mae randomly surveyed 1,812 adults from April 30 to May 10, 1999 and 878 adults responded. The survey's accuracy is plus or minus 2.9 percent, it says.

"A shadow is falling across the otherwise positive news is how many Americans don't fully comprehend the relationship between paying bills late, having bad credit, and experiencing difficulties in qualifying for a mortgage," Raines said.

The survey also found:

The percentage of Americans who say that having enough money for a down payment and closing costs is a major obstacle to their home buying prospects has fallen to just one American in four, compared to the average nearly one in two Americans who said it was an obstacle from 1992 to 1997.

Only 23 percent of all adults said being able to find a home they like and can afford was a major obstacle to home ownership, compared to average 43.5 percent between 1994 and 1997.

Three years ago, nearly half (48 percent) of all Americans said having enough confidence in job security was a major obstacle to owning a home. Today the number dropped to 13 percent.

"Fannie Mae's survey reveals a vibrant mortgage market place, with barriers to home ownership having fallen since early in the decade," Raines said.

Also See:

Clean Up Your Credit

Your Credit Score Isn't A Numbers Game

Credit Scoring in the Mortgage Industry

Review Your Credit Report Before Your Lender Does

Published: August 4, 1999

Use of this article without permission is a violation of federal copyright laws.

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