How expensive is a low credit score when getting a mortgage
by Dave Jensen
This post is updated to reflect mortgage rates as of June2024
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When it comes to getting a mortgage, it’s best to know exactly how expensive a lower credit score can be.
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Broadcast news often reports a single mortgage rate as the national average for a 30year fixed rate conventional mortgage. It’s a decent gauge but what is not always reported is how good your credit score needs to be to get that rate. Also not reported is that those rates generally assume you’ll put down 20% of the purchase price as a down payment. Not easy for everyone.
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There are many different types of mortgages. FHA, USDA, and VA are the most common alternatives to conventional mortgages. These require very low down payments (3.5% for FHA and 0% for USDA and VA).
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Data from credit scoring company FICO shows that the lower your credit score, the more you’ll pay for credit. That makes sense. But what is the actual cost?
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Here’s a look at the different costs for a 30-year fixed-rate conventional mortgage.
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It helps to know why you may not get that “best rate”, and how much a lower credit score will cost you.
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In Houston, the average price of homes sold in April2024 is $347,000
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If you have a 700 credit score, your monthly payment will be about $2,375
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If you have a 650 credit score, your monthly payment will be about $2,573
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That’s a difference of $198 per month. Not much huh?
Across the life of the loan, you will end up paying over $71,110 more, just because you have lower credit.
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It’s likely you’ll refinance or move before then, but why pay more at all if you don’t have to?
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You can read more on this topic at this businessinsider.com site www.businessinsider.com/personal-finance/average-mortgage-interest-rate
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