If you want an easy time qualifying for a loan or, better yet, a more affordable one, then increasing your credit score is one of the best ways to make it happen.
That’s because credit scores play a big role in the mortgage process. They show lenders how responsible you are with your money and how likely you are to repay your debts. They also speak to your payment habits (are you often late?), as well as how much experience you have with credit cards, loans, and other financing products.
If you’re preparing to apply for a mortgage, it’s always important to pull your credit score before doing so. If it’s low (think under 740), there’s room for improvement. And if you can reach that 740 mark? You’ll get a whole slew of benefits — and probably save some money too.
What a good credit score means when buying a house
There are tons of advantages to having a high credit score when you apply for a mortgage loan. With a higher score, you’ll enjoy:
A lower interest rate
Lenders give higher interest rates to riskier borrowers — those who are more likely to default on their loan or fail to make payments. But borrowers who are less risky (i.e., those with great credit scores)? They get the lowest, most affordable interest rates. This means both a lower monthly payment and fewer long-term loan costs.
A bigger homebuying budget
Because higher credit scores lower your rate and monthly payment, they actually expand your homebuying budget and allow you to afford a more expensive house. Here’s an example: Say you can afford a $1,000 monthly payment. With an interest rate of 4.5%, that’d mean a home priced around $200,000. If you had a higher credit score and qualified for a 3.5% rate, though? You could get a $223,000 house for that same $1,000 payment.
More loan options
Every mortgage program has a minimum credit score. While you only need a 500 to 580 for an FHA loan, conventional mortgages require a 640 most times. If you’re seeking a higher loan amount or a mortgage for an investment property, you might need an even higher score (since these are riskier loans).
In short: The higher your credit score, the more loan programs you’ll have to choose from.
A less expensive loan in the long term
A lower interest rate doesn’t just save you on your monthly payment. It also means fewer long-term costs too. Case in point: A $200,000, 30-year mortgage with a 4.5% rate would mean spending nearly $165,000 in interest over the life of the loan. With a 3.5% rate, it’d be just $123,000 — more than $40,000 less.
Run the numbers
Want to get a feel for what your payment, rate, and loan terms would look like with your current credit score? Get in touch with Premier Nationwide Lending today.
Premier Nationwide Lending is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 6201 West Plano Parkway, Suite 100, Plano, TX 75093 | NTFN NMLS 75333.