It’s no secret that your credit score can impact the interest rate on your mortgage. In fact, a 100-point swing could cost you or save you thousands of dollars. A high credit score along with your DTI (debt-to-income ratio) and your financial history will get you the lowest interest rates on a mortgage. Why is this you ask? Mortgage lenders rely on a person’s credit score as an indication that you will meet your financial obligations. If you have a track record of on-time payments with creditors, you’re their ideal client. And that works for your advantage because you get better interest rates on your mortgage.
What Credit Scores Get The Best Interest Rates?
If your credit score is 700 or higher, you’ll be awarded the lowest interest rates on any mortgage. Although you can still qualify for a loan if your score is lower than 680, lenders want to see you in the 700’s. Lenders break up credit scores by 20-point increments and will adjust interest rates based on a 20-point move up or down. For example, if your credit score drops from 760 to 740, you’ll see a small increase in the interest rate on your mortgage. Thus, taking care of your credit score is important to get the best rates.
Interest Rates Will Vary Based On Your Credit Score
Let’s assume a borrower wants to purchase a $300,000 home with 20% down and a fixed-rate 30-year mortgage of $240,000. Because the borrower’s FICO score is 780, they’re given a 4% interest rate. Their payment would be roughly $1,164 per month not including insurance and taxes (or HOA fees if applicable). Let’s assume that their credit score dropped to between 680 and 699. The interest rate would increase 0.5% and their payment would be $1,216 per month or $744 more per year.
Are There Mortgages Where Credit Scores Aren’t As Impactful?
Fannie Mae and Freddie Mac-backed conventional loans, put lots of focus on your credit score. Consequently, the impact of a lower credit score will be substantial on a conventional loan. On the other hand, an FHA or VA loan requires a credit score of 700+ compared to 760 for conventional loans. Furthermore, you could have a credit score of around 500 and still get an FHA loan whereas VA loans don’t have a minimum FICO score requirement. However, lenders will look for a FICO score of 620 or more on VA loans.
Contact With Your Ohio Mortgage Expert Today!
To learn more about mortgage interest rates and how your credit score can affect them or to speak with a loan specialist about your needs, contact Liberty Capital Services at (614) 505-0620 when convenient.
