When you’re obtaining a loan to
purchase a home, your credit score plays a huge role in your ability to
buy. This is common knowledge for most consumers but did you know how
your credit score really affects your buying power?
Most loan programs require at
least a 620 FICO score in order to qualify but the higher your score, the lower
the rate. The lower the rate, the more dollars-per-month you qualify for
and the more dollars-per-month, the higher the purchase price. In short,
you get more “bang for your buck” with a higher FICO score.
With conventional loan programs,
the interest rates offered are usually tiered for every 20 FICO points added to
your score. This means that the difference in an offered rate from a 620
score vs. a 740 score could save a home buyer hundreds of dollars per month OR,
increase their buying power by thousands of dollars in regard to purchase
price.
Other ways in which your credit
score can affect your buying power include how much you’ll be required to put
down on the home and how much your mortgage insurance premium will be (don’t
confuse mortgage insurance with homeowner’s insurance, they are two different
policies but that’s an entirely separate post in itself). On the lower
end of the credit spectrum, your mortgage insurance premium could be
significantly more than if your scores were higher. This alone could save
you hundreds of dollars per month and thousands of dollars over the life of
your loan.
So we know credit matters but
knowing how much it matters and having the tools to improve your credit is the
key to locking in the lowest rate and mortgage insurance premium on your home
mortgage.
Next time, we’ll talk about ways
to improve your scores and in the meantime, if you’re curious to know how your
credit will affect your ability to buy, give Kim a call!
Kim Hendry
Mortgage Loan Consultant
Veritas Funding
NMLS # 288635
CA-DBO 288635
Cell: 801-688-0599
Fax: 801-639-0910
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