The higher your credit score, the lower your mortgage rate will be. We all know this, it’s not rocket science. What might be something you didn’t know, is that the higher the credit score, the more options you’ll have as a borrower. With a lower credit score, a lot of important loan programs are unavailable, making the higher the credit score, the more options you’ll have.
Mortgage rates have jumped around 4% since 2013, which some see as the difference in homes they can purchase. Not everyone has the same low rates, even though against historical data, rates are unusually low. This is where your credit score comes in.
If you have a high credit score, a large income, and multiple assets, then you can be considered a prime mortgage borrower. The low mortgage rates that we usually hear about or see in advertisements are tailored for those who fall under that umbrella. However, many applicants are not considered prime mortgage borrowers.
An example of a prime borrower versus an average borrower is pretty straight forward. Let’s say there are 2 separate borrowers, but both are buying identical houses at the same price and both making it their primary residence with a 20% downpayment. The only difference is that one is considered a prime mortgage borrower with a 740 credit score, the other is not with a 680 credit score. The homebuyer with the 740 score is given a mortgage rate of 3.75% while the other is given a 4.25% rate. This one detail is significant because the difference in mortgage rates adds up in the long run. The difference in 0.5% could yield upwards of $30,000 in extra mortgage payments.
Bottom line, the higher your credit score, the more money-saving loan program options you’ll have.