Whether you’re a millennial first-time home buyer or you come from another generation, understanding the impact your credit score has on a home purchase is vital. If your credit score is less than stellar, you will likely pay more in interest and you may not get approved for as large of a mortgage.
According to Fico.com, the average credit score ranges from about 659 to 747, depending on your age. The older you get, the higher this average score tends to be, with the lowest score for the age range of 18 to 29. Those from age 30 to 39 have an average score of about 677 and those from 40 to 49 have an average FICO score of about 690.
Why Does Your Credit Score Matter?
When it comes to financing a home, you’ll be applying for a mortgage. This mortgage will come with an interest rate and you’ll likely need to pay a percentage of the purchase price as a down payment.
Your credit score is one of the main determining factors for the interest rate, mortgage amount, and down payment amount. The lower your score, the more you will likely need down, and the higher your interest rate will be.
Higher Scores = Massive Savings
If you use the loan savings calculator from MyFico.com it will show you how much you can save, by increasing your credit score before you buy. On a 30-year fixed mortgage in North Carolina, you will take on an interest rate of 5.077% if your credit score falls between 620 and 639. However, if you increase your score to 700 or more, you will drop that interest rate to 3.705%.
Just boosting your score to the next level (640 to 659) could save you nearly $30,000 over the course of the loan!
Check Your Score & Make Changes Before Buying
Armed with the information above, it should be pretty easy to see why your credit score matters when you want to buy a home. You could save thousands of dollars if you take the time to build your credit and increase your FICO score.
Before you buy a house, start working on your credit. In fact, if you think you might want to buy a house in a year, two years, three years, or five years, now is the time to start working on your credit.
Start by getting a copy of your credit report with your FICO score. This will give you a starting point. Then, you can work on improving your score. Some of the best ways to improve your credit score include:
- Pay down old debts
- Pay your bills on time every time
- Pay credit cards down and carry a balance lower than 25% of your credit limit
- Open up a credit card account, if you have no credit or not much on your report
- Set up automatic payments for your bills
- Keep credit inquiries to a minimum
- Don’t close old credit cards or accounts in good standing
If you’re thinking about buying a home, it’s a good idea to begin the process by working on your credit. A score over 700 will help you save a large sum of money over the course of your mortgage. It may take a year or even longer to truly repair/build credit, but it will worth it when you start shopping for homes for sale in Mint Hill, NC.
I would love to be part of your journey when the time is right for you. If you ever have a real estate question or need, or know someone who does, trust that you can turn to me. I will help you make the right move! Anna Granger 704-650-5707 | email@example.com.