The Importance of a High Credit Score When Buying a Home: Understanding the Cost Difference

Your credit score affects every step of the home-buying process, from obtaining a mortgage to negotiating interest rates, which can affect the loan amount or program you qualify for. Here is why having a high credit score is important when buying a house. 

Why Does a High Credit Score Matter When Buying a Home? 

The CFPB defines a credit score as a prediction of your credit behavior, such as how likely you are to pay a loan back on time, based on information from your credit reports. Your credit score is a number that reflects your financial responsibility. Your score is used by lenders to evaluate your creditworthiness and is one factor that determines your mortgage interest rate. Higher credit scores indicate to potential lenders that you are a low-risk borrower, which opens the possibility of better loan conditions and lower interest rates. 

What is the Cost Difference Between a Credit Score of 640 and 740? 

To illustrate the significance of credit scores in the home-buying process, let's compare the cost difference between a credit score of 740 and 640 using a hypothetical scenario for a primary residence/single family home with a purchase price of $300,000, down payment of 20% and loan amount of $240,000 with a 30-year fixed interest rate term:

The difference in interest rates between the two credit scores results in a monthly mortgage payment that is approximately $184 higher for the borrower with a credit score of 640. Over the course of a 30-year loan, this amounts to a substantial difference in total interest paid. 

Additional Mortgage Benefits of a High Credit Score 

In addition to lower interest rates and monthly payments, a high credit score may also make you eligible and accessible to a wider range of loan products. Furthermore, a strong credit history can expedite the loan approval process and increase your chances of securing financing. 

A high credit score is an asset when buying a home, as it can save you thousands of dollars in interest payments over the life of your loan while building equity faster. By maintaining good credit habits, such as paying bills on time, keeping credit card balances low, and monitoring your credit report for errors, you can increase your credit score and position yourself for greater financial flexibility and opportunities in the home-buying process. Whether you're a first-time homebuyer or a seasoned homeowner, prioritizing your credit health is key to achieving your homeownership goals. The expert loan officers at Standard Mortgage (NMLS#: 44912) are here to help with your home purchasing and refinancing needs. 

* Prices, rates and APRs are for example only. Interest rates are subject to change and assets and collateral are subject to approval.
This is not a commitment to lend.