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Forbes | May 16, 2018

Even A ‘Good’ Credit Score Equals $15K More In Mortgage Costs


Most home buyers know their credit score plays a role in the mortgage application process. But just how big a role is it

According to new data from LendingTree, just a few points difference could save buyers $10,000 or more in interest over the life of their loan.

Buyers with a 760 or higher, for example, pay around $207,000 in interest over the course of their mortgage. Those with a 719—largely still considered a “good” score by most lenders—would cost more than $222,000 in interest, a difference of $15,000.

When you go lower on the spectrum, into the 640 to 679 credit score range, buyers pay upwards of $237,000, while those with scores 620 to 639 pay $243,000—a whopping $36,000 more than those with “excellent” scores.

Why Credit Score Matters

According to Robert M. Barthelmess, managing partner at BGI Capital, the impact credit scores have on interest rates is undeniable.

“Undoubtedly, a high credit score is the biggest contributor to the rate you get on the loan,” Barthelmess said. “And even the smallest variance in rate can have a huge impact on what you pay during the life of the loan.”

But it’s not just interest rate that a buyer’s credit score can impact. According to Chris Lewis, manager of sales and operations at Angel Oak Home Loans, a borrower’s credit score can affect everything from pricing and down payment to the loan options they have available in the first place.

“A credit score can impact which type of financing a loan applicant qualifies for, the initial costs, and long-term effects of rates and fees,” Lewis said. “On both types of financing [conventional and government-insured], higher credit scores can often allow applicants to enjoy better interest rates and lower down payment requirements.”

There’s Still Hope

Though a low credit score may mean more paid in interest, it doesn’t disqualify someone from a loan altogether. Some lenders even accept credit scores as low as 500, according to Lewis.

Richard Barenblatt, a mortgage specialist at GuardHill Financial Group, said opting for a smaller loan can help buyers with less-than-ideal credit scores.

“The greater a borrower’s need, the more important their credit score becomes,” Barenblatt said. “Borrowers who need a high loan-to-value must have better scores than those seeking less financing.”

Choosing non-traditional lenders can also help, according to Barenblatt. He suggests working with independent mortgage brokers or credit unions—who can often be more hands-on in their underwriting processes—instead.

“Some community savings banks don’t rely on credit scores alone,” Barenblatt said. “Rather, their underwriters focus on the substance of what’s contained in the report when making a decision. For example, a late payment emanating from a dispute with a cellular phone company or a collection from a medical bill, if well explained, may be excused, and the borrower can secure as good an interest rate as someone with a perfect score.”

Buyers can also work to improve their credit score if they want to save on interest or have more options when home buying. To do this, Barthelmess encourages buyers to dispute errors found on their credit reports, pay any bills that have been sent to collections and use cash reserves to pay down existing debts and credit balances.

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