Why Improving Credit Score Is Worth It Before Buying a Home?April 17th, 2023 by Administrator
Whether you are searching for Reseda properties for sale, Encino properties for sale, or homes for sale elsewhere in the Los Angeles neighborhood, there is one thing that you might wish for – getting a lower interest rate on your home loan. Did you know that, just by increasing your credit score, you can save over $100,000 on your home mortgage payments?
By improving credit scores, prospective homebuyers can reduce their costs amidst rising interest rates and home prices. In this market, this is the one feasible step that buyers can take to save money while investing in a home.
Does an excellent credit score have any impact on your home loan?
According to a recent study by Zillow, individuals seeking to purchase a home with lower credit scores may end up paying an additional $103,626 throughout the 30-year fixed mortgage loan term compared to those with excellent credit scores, given the current average home price of $354,165.
Homebuyers with fair credit scores in the range of 620 to 639 may have to shell out an additional $288 per month towards their mortgage payments in contrast to those with excellent scores ranging between 760 and 850.
This difference is caused because of the interest rates home loan borrowers are charged. While a good score qualifies for a 6.688% interest rate, this rate can reduce to 5.099% in case of an excellent credit score, as per the calculations based on Zillow Home Value Index and the FICO Loan Savings Calculator’s interest rates.
What to do improve the affordability when buying a home?
At present, the primary focus of the housing market is affordability. Home prices have increased by almost 20% nationwide when compared to the previous year, and this, when combined with the rising mortgage interest rates, has resulted in a 62% increase in the standard monthly payment for a home in just one year. As a buyer in the current market, many factors are beyond your influence, but you can take charge of your credit and financial history.
Lenders utilize your credit score to assess the probability of you repaying a loan. This score is then used by mortgage lenders to decide whether to grant you a loan and what interest rate to assign to that debt.
What affects your credit score?
Various elements on your credit report, including your bill payment history, outstanding debts, the number of active loans, the length of time your accounts have been open, the percentage of available credit that you’re using, and your recent credit applications, are all taken into account when determining your credit score.
Homebuyers can improve their credit scores and search for various mortgage options as interest rates increase. Keep an eye on your credit score for at least six months before applying for a home loan.
Make sure to review your credit report. This can present you with an overview of what a lender would observe when assessing your credit.
This could involve decreasing your debt to below 30% of your limit, which is the most effective way to improve your credit score positively.
Hope this helps you understand how crucial it is to have an excellent credit score, especially when you are looking forward to buying a new home.