A Buyer really needs to know his or her credit score before writing a purchase agreement to buy a home so he or she will have a realistic idea of what the monthly payment will be. Most lenders quote rates based on the best credit score. If a buyer has a lower than “A” credit score, the rate goes up in increments that could dramatically affect the payments.
There is an inverse relationship between the credit score and the interest rate charged. The higher the score, the lower the rate will be. As one can see from the chart, this lender quoted their best rate for a credit score of 760-850. However, this lender’s minimum acceptable score of 620-639 would have to pay 1.5% higher interest. In the example below, it makes almost $200 a month difference. It is critical to know your credit score before one can make a decision to buy a home.
For A 30 year Fixed Rate Mortgage – $200,000 Loan Amount – An Example
FICO Score APR Monthly Payment
760-850 4.466% $1,009
700-759 4.688% $1,036
680-699 4.865% $1,057
660-679 5.079% $1,083
640-659 5.509% $1,137
620-639 6.055% $1,206
A Buyer’s logical first step should always be to get pre-qualified or pre-approved with a mortgage lender prior to looking at homes. This gives the buyer the confidence of knowing how much mortgage is available and if they can expect the best interest rate which will lower their payment. Other benefits include bargaining power, quicker closing and the chance to discover any issues on their credit report that need to be corrected before going on contract to purchase a home. We have a few tips to hel you increase your credit score. Contact Ken Fisher at 317-845-9511 to get started today.