Just how much do a few points up or down on your credit score affect the amount you’ll pay for a mortgage? This article from Bankrate goes behind the numbers to explain how your score can determine your costs.
You’ve probably heard that good credit entitles you to affordable financing, but could boosting your score by, say, 10 points significantly affect the amount of interest you pay?
The answer: Absolutely, depending on your starting point. While rates, terms and conditions vary among lenders, there are certain tiers you should aim for in order to secure the very best rates on a mortgage, auto or credit card loan.
When it comes to shopping for a mortgage, your credit score holds major influence over the loan fees you must pay. Loan-level price adjustments, or LLPAs, are fees charged by Fannie Mae and Freddie Mac, the two government-controlled entities that purchase mortgages from lenders.
Generally speaking, “the lower your credit score, the greater the cost (of the mortgage),” says Michael Becker, a branch manager with Sierra Pacific Mortgage. The LLPAs increase or decrease at 20-point credit score intervals and “anyone within each interval or level will get the same rate,” Becker says.
A score of 740 generally qualifies you for the best adjustments – so there’s no pressing need to move the needle much higher before you hit the mortgage market. Conversely, you probably won’t qualify for a mortgage with a credit score less than 620, given Fannie Mae and Freddie Mac aren’t likely to purchase those loans.
