Looking to buy a new home? If so, your credit will help determine the mortgage terms – if any, you may be offered. Here’s how credit can impact your mortgage terms along with tips to help you save money on your next home purchase.
What Your Credit Score Tells Mortgage Lenders
At a glance, your credit score tells mortgage lenders how you handled your debt in the past. This information can help them determine if you are a good or bad risk for a mortgage today. Among other personal factors, such as your income and down payment, your credit score will directly influence whether or not you get approved for a mortgage. Additionally, your credit will also help decide what mortgage terms you may be offered.
Why Your Credit Score Matters in Mortgage Negotiations
The higher your credit score, the more likely it may be for you to be approved for a mortgage. Excellent credit could also increase your chances of achieving more favorable loan terms such as a low-interest rate. Alternatively, a low credit score will likely have the opposite effect. Having bad credit could result in a mortgage denial, a high-interest rate, and a hefty down payment requirement – if approval is given at all.
What is a Good Credit Score to Have When Seeking a Mortgage?
Not only will your credit impact your approval odds and interest rate when seeking a mortgage, but it may also affect the costs of your home loan over time. Currently, the median home price in America is roughly $226,800. With this in mind, below is an example of how your credit score could impact a 30-year mortgage of $200,000.
- Credit Score of 760-850 – Depending on your lender, if you have a close to perfect credit score, you could be offered approximately 2.577 percent interest rates on a 30-year loan of $200,000. This score would make your monthly payments about $798 to make the total amount of interest you’ll re-pay a little over $87,000.
- Credit Score of 700-759– A credit score between 700 and 759 may qualify you for an interest rate of about 2.799 percent on this loan, with payments of approximately $822 a month. The total interest you will have paid in this scenario amounts to about $96,000.
- Credit Score of 680-699– With a credit score lower than 700, you could look at an interest rate of 2.976% on a $200,000 loan for thirty-years. This rate will make your payments about $840 a month, making the total interest you will pay at just over $102,000.
- Credit Score of 660-679– A score between 660 and 679 may give you an interest rate of about 3.19 percent on a $200,000 mortgage. This puts your monthly payments at about $860 a month, and your total interest to pay back at about $110,000.
- Credit Score of 640-659 – This credit score is considered low for a mortgage and could cause your interest rate to increase to 3.62%. Payments at this interest rate will be just over $900 a month, and you would re-pay more than $125,000 in interest over the life of the mortgage.
- Credit Score of 620-639– This is perhaps the lowest score range that a lender might consider. Some lenders could go as low as 500-579, though it may be hard to find one. Other lenders may issue government-backed FHA and VA loans at credit scores of 580. However, if you have a credit score between 620 and 639, you could look at an interest rate on your loan of 4.16% with monthly payments over $970. In this low score scenario, you would repay more than $150,000 in interest over the mortgage life.
How Much Great Credit Could Save You on Your Mortgage
The example scenario above shows a more than a $63,000 difference in the amount of interest you could repay on a $200,000 mortgage based on credit. Therefore, if you are considering purchasing a new home, it would be to your financial advantage to increase your credit scores before applying for a mortgage. New software technology, such as ScoreShuttle, can give you the tools to move yourself into a more favorable credit range for a mortgage. To get your mission to better credit for mortgage started, click here.
Disclaimer: The mortgage credit and payment scenario above is for demonstration purposes only. ScoreShuttle is not a mortgage lending firm and does not provide or guarantee mortgage loan approval. ScoreShuttle does not take mortgage applications, make mortgage decisions, lock rates, service mortgages, fund or approve mortgage loans on a lender’s behalf, or provide any other mortgage loan service. Always be sure to do your own research on the home and mortgage terms that are right for you. Links to third-party websites are provided for convenience only. ScoreShuttle does not endorse nor support the content of third-party links and is not responsible for the content of a third-party website. By clicking on a third-party link, you will leave the ScoreShuttle portal. Privacy and security policies may differ from those practiced by ScoreShuttle.