Source: CNBC —
Anyone who’s exploring homeownership may know that rising interest rates and elevated home prices are making that goal challenging.
The average rate on a typical 30-year, fixed-rate mortgage has been zigzagging between 6% and 7% for the last several months — down from above 7% in early November but roughly double the 3.3% average rate heading into 2022, according to Mortgage News Daily.
Yet the interest rate that any particular buyer is able to qualify for depends at least partly on their credit score — meaning you have some control over whether you’re able to get the best available rate, experts say. And the difference that a good or excellent score makes in terms of monthly payments — and total interest paid while you hold the mortgage — can be significant.
“The score impacts practically everything: loan approval, interest rate, monthly mortgage insurance premiums … and ultimately their payment,” said Al Bingham, a credit expert and mortgage loan officer with Momentum Loans.
The median home price in January was about $383,000, according to Redfin. Although prices have been sliding since mid-2022, that amount is still 1.5% higher than a year earlier. In January 2020, the median was below $300,000.
While you may be able to negotiate on the price of the house to bring the overall cost of homeownership down, it’s also worth making sure you go into the process with as high a credit score as possible.
Lenders check three scores but use one number
Although things like steady income, length of employment, stable housing and other aspects of your financial life are important to lenders, your credit score gives them additional information.
The three-digit number — which ranges from 300 to 850 — feeds into a lender’s calculation of how risky a borrower you may be. For example, if you’ve always made your debt payments on time and you have a low credit utilization (how much you owe relative to your available credit), your score will benefit.
