5 More ways a high credit score will help you buy a house!

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It’s a strange paradox. Homeownership rates are at 50-year lows in the U.S. right now and interest rates are still low, which leads us to believe it’s a perfect time to take advantage and buy a home. But in Sacramento and other cities, inventory levels are so low that it’s actually difficult to find the house you want and then get your offer accepted amidst so much competition.

But one crucial way you can make sure you’re ready to go house hunting, improve your chances of getting an offer accepted, and even afford more home for the same monthly payment is to focus on your credit score.

In fact, the very first step you should take when thinking about buying a home or taking out any new loan is to make sure your credit score is up to par.

There are some huge direct and indirect benefits to having a great credit score during the entire home buying process, from managing your savings and getting out of debt all the way to being approved for that low-interest rate mortgage.

In fact, keeping a high credit score will not only save you a whole lot of money, but it will help you in many other ways during the home buying process.

In part 1 of this blog, we covered the first 5 ways a high credit score will help you buy a house. Today, we’ll cover the next 5:

  1. More loan programs are available for high credit score borrowers

On paper, you should be able to buy a house with an FHA loan with a credit score all the way down in the 500s. However, real life doesn’t always work like that, and even though FHA will back that loan, it’s hard to find a lender to approve it. Generally speaking, the higher your credit score, the more loan programs you’ll have available to you, increasing your chances of ending up with the best mortgage that fits your needs.

A good credit score will also be essential when it’s time to buy an investment property, vacation home, or do a cash-out refinance!

  1. A lower down payment

Think of mortgage lending as a sliding scale with the aim of managing risk, so any negative in your file has to be balanced out with something that reduces that risk. That’s where down payment comes in, and if your credit score is low, many lenders will require you to put a higher down payment in for the home purchase. Even the difference between putting 10% or 20% down can add up to some serious bucks ($40,000 on a $400,000 home!) which may shut the door on your purchase. Sure, there are FHA loans that offer down payments as low as 3.5%, but those are predicated on credit score, too, and come with mortgage insurance requirements. The bottom line is that a great credit score can only help you put less down when you buy!

  1. A lower mortgage interest rate!

Now we’re really talking! The #1 clear benefit of a great credit score is that it allows you to get a mortgage loan with the lowest possible interest rate, which saves you a moving truck full of cash over the years of being a homeowner.

Consider these two scenarios for a $320,000 home loan spread out over 30 years:

A 4% interest rate would mean your monthly payment is $1,527 (just for the mortgage), and you’d pay $549,982.42 in total, with $229,982.42 of that being interest.

But a 5% interest rate (because you had a poor credit score) would bring your monthly payments to $1,717, your total payoff to $618,418.51, and your interest payments to $298,418.51.

Of course, this is just an illustration for educational purposes, but that means you’d save not only $190 per month in payments just by having a great credit score, but save $68,436 over the life of the loan, eliminating nearly $70,000 in interest payments!

Wow, a fantastic credit score really pays off when it comes to home buying!

  1. Smoother loan closing

When a borrower has a high credit score, there are less likely to be issues, challenges, and difficult conditions raised by the underwriter, so the loan is more likely to get approved efficiently and on time. That’s a good thing if it means getting the keys to your new house faster!

  1. Combat future competition and interest rate increases

Interest rates may be going up, and the housing marketing is tightening like a vice for buyers in some markets (like Sacramento, CA), but keeping a great credit score is the #1 way to ensure that you’re always in a prime position to not only survive but thrive wherever the economy turns!


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