Home News Lower credit scores may lead to $104,000 more in mortgage costs

Lower credit scores may lead to $104,000 more in mortgage costs

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Today’s home buyers face high home prices and rising interest rates, so there’s one thing you can do to save money. It’s about improving your credit score.

Zillow Home Loans consumer finance expert Amanda Pendleton said:

A new analysis from Zillow shows that, based on the current price of $354,165 for a typical home, homebuyers with lower credit scores pay more than those with better scores at $103,626 over a 30-year fixed mortgage term. It turns out that you may pay more dollars.

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Buyers with fair credit scores between 620 and 639 are likely to pay $288 more in monthly mortgage payments compared to homebuyers with excellent scores between 760 and 850 there is.

The difference is due to the interest rate charged to the borrower. A fair credit score qualifies for an interest rate of 6.688%, while a good score can claim a much lower rate of 5.099%. Calculations are based on Zillow Home Value Index home prices and FICO Loan Savings Calculator interest rates as of July 26th.

Credit is one factor the homebuyer can control

“Affordability is the biggest story in the current housing market,” Pendleton said.

“Home prices across the country are up nearly 20% year-over-year,” she said. “Combine that with higher mortgage rates, and the typical monthly payment for a home is 62% higher than it was a year ago.”

If you’re a buyer in today’s market, Pendleton said many factors are out of your control. But you can manage your credit and financial history.

A credit score measures your chances of repaying a loan. Mortgage lenders use these scores to determine whether to offer a loan and the interest rate to pay on that debt.

Your credit score is determined by the factors considered in your credit report, such as your bill payment history, outstanding debt, number of outstanding loans, how long those accounts have been open, amount of available credit, and new credit. increase. the application you made.

Credit scores can vary depending on the company that offers them. Scores typically range from 350 to 850.

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“It really pays off for buyers to take steps to improve their credit scores and consider mortgages as they see interest rates rise,” Pendleton said.

Pendleton says that if you’re thinking about buying a home, you should consider your credit score at least six months before that goal.

First, check your credit report. check free every week Until the end of 2022, It helps you know what the lender will look for when drawing out your credit.Generally, those Free report available once a year.

Watch out for anything that seems inappropriate, such as incorrect information you want to dispute, or payment delays you want to avoid in the future.

Next, look at your current credit profile and plan based on where you stand.

This may include paying off debts up to less than 30% of your limit. “This will have the most positive impact on the score,” Pendleton said.

Make sure your bills, such as credit cards and automobiles, are paid consistently and processed on time.

As you get closer to your homebuying goals, avoid large purchases that require financing, such as buying a new car or furniture. This is because it negatively affects the debt-to-income ratio. Applying for a new credit card or loan can also lower your score.

The good news is that depending on your credit record, you may be able to improve your credit score in as little as three to six months, Pendleton said.

Additionally, if you’re joining as a first-time homebuyer with a low credit score, explore other loans and programs that may be available to people who fit your profile.

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