The Importance of Your Credit Score when Getting a Mortgage

The joys of home ownership are wonderful. For many people it's their life's dream to own their own home and not pay rent to anyone ever again. Often time's people get bogged down with all of the details in what's required in getting a mortgage. One of the most import things to understand is your credit score and how it will affect your mortgage.

First off let us look on how your credit score can affect your interest rate and how that could make you spend $1,000's more over the course of the mortgage. Take for an example if your mortgage is $350,000 at a 7% loan. At this rate you will pay $24,500 in interest over the life of the loan. Now if you take the same mortgage at a 10% loan you would pay $35,000 in interest. So the increase in interest will cost you over $10,000 dollars.

The next questions people ask is how does my credit score affect my interest rate. Your credit score is going to work as a sliding scale. The higher your credit score is the lower your interest rate will go. So say if you have a score at the top of the credit score pyramid between 760 and 850. With a score in-between those numbers you will be looking at under 6%. Now rates do change with other influences out of our control but this is a good barometer. Now take you have an average credit score of 640 you could be looking at a credit score of over 7.5%. If you then had a poor credit score of around 500 you would be paying over 10%. Anything below 500 and you can forget about getting a mortgage. Honestly under 600 you should be repairing your score before purchasing a home.

Also your credit score will be part of the equation on how much money you will be able to borrow. Also involved in the amount you can borrow will be your income, money in the bank, down payment amount and the actual house you are going to purchase. Banks will take all of these in consideration when seeing if you are eligible to purchase the home. When one has a lower credit score it helps them in two ways. First they will be able to lower your interest to allow you to have a higher principal on your monthly payment. Secondly your credit score will be an indicator on how much you will be able to take out in the loan.

We hear on a regular basis on how important it is to maintain a high credit score. You will see ads on TV and in print. You will be reminded on how important that score is when you sit down to complete your first mortgage.