Buying a Home? Your Credit Scores Can Be Your Best Friend or Worst Enemy!
Maintaining a favorable credit rating is extremely important! If you are considering purchasing a home in the near or distant future, your credit score can be your best friend or worst enemy. Let me to show you how.
Home buyers who maintain an average credit score above 700 will pay far less to purchase a home than those whose credit scores fall below 700. In fact, a home buyer whose credit score falls below 700 will likely pay two to four percentage points more to finance a home than a home buyer whose credit score is above 700. To determine what this means in dollars, take a look at the following example.
Example:
Buyer "A" has a credit score of 720. Buyer "B" has a credit score of 620. Buyers A and B have both submitted offers to purchase a home priced at $400,000. Buyer "A" has a mortgage loan interest rate of 4%, which is the best rate available. In the industry, the best rate is called a paper rate. Buyer "B" has a mortgage loan interest rate of 6%, which is two percentage points above the current paper rate.
Given the interest rates reported, Buyer "B" will pay a higher monthly mortgage payment than Buyer "A". Why? ... Because Buyer "B" has a credit score of 620 and Buyer "A" has maintained a credit score of 720.
The following calculation shows how much more Buyer "B" will pay for a $400,000 mortgage loan compared to Buyer "A" with the same loan.
2% x $400,000/12 = $666.67 per month
Thus, Buyer "B" will pay $666.67 more per month than Buyer "A". This amount equates to an increase of $8,000.04 per year and $120,000.60 for a 15 year mortgage. For a 30 year mortgage, this amount increases to $240,001.20.
Based on the results indicated, maintaining a high credit standing is extremely important! Without a doubt, your credit scores can be your best friend or worst enemy. Which one do you have?
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