Setting out on a journey to buy a new home can be an exciting adventure. You get to search for that updated kitchen you’ve been craving or spacious backyard your kids can play in – all while dreaming about the new memories you’ll create in your new household. While not the most “exciting” part of the process, shopping around for a good mortgage rate is an essential part of purchasing a new home.
According to a credit repair Dallas expert, even more important than stashing away enough money for your down payment or reaching out to providers for quotes, is your credit score. Is “good enough” really what you should be aiming for? After all, a credit score that is just on the cusp of being suitable could wind up costing your thousands of dollars in additional interest over the lifespan of your loan. ‘
Buying a home is one of the biggest investments you’ll make in your life, so why would you want to subject yourself to an inflated out-of-pocket cost? So, before you begin the application process, here’s a look at why your credit score is so important to securing a good home loan.
A Credit Score’s Impact on Mortgage Rates
Your credit score is the main determining factor institutions use to calculate your mortgage rate. From a bank’s perspective, they are making a commitment to lend you a certain amount of money over the course of 25 to 30 years. During that time frame, there’s a strong possibility that you’ll encounter some setbacks, change your career, experience economic fluctuation, and even see your neighborhood go through changes.
While your current financial standing, such as your income and assets, are important, your credit score is something the banks use as an indicator of whether or not you’re likely to return borrowed funds and make timely payments.
Those with low credit scores can have their application denied, or if they are approved, they’ll face incredibly high interest rates. Believe it or not, there’s even a big difference between a good versus great credit score. On average, a mortgage applicant with a credit score between 680 and 699 typically see a 0.399% boost in their interest rate when compared to a person holding a score in the 760-850 range. Think that sounds like no big deal? Guess what, it is! For example, over the course of 20 years, the individual who possesses the 680-699 score will have to dish out over $20K more in interest than the person holding the higher score on a $244,000 loan.
What This Means for You
Getting hold of your credit score before shopping for a home or mortgage rates is essential. If you begin taking steps to increase your score, such as paying off credit card balances, looking for any errors on your credit report, and making on-time payments, you’ll see your credit score begin to rise.
This is crucial if you want to get the lowest rates available on the market. If you’re planning on a down payment that’s 20% or higher, a credit score of 740 is typically sufficient enough to gain access to the best available mortgage rates.
Even if you’re facing time-constraints or don’t have the bandwidth to lock down an “excellent” credit score, improving your score by a few points can make a world of difference in the long run – a.k.a. Keep money in your pocket.