Home Mortgage Rates: Credit Score an Important Variable

Michael Burge indicated in yesterday’s Los Angeles Times that, “Without a high credit score, you won’t qualify for the best mortgage rates available, which could mean you’ll end up paying more money over the term of your mortgage. Even with rates at historic lows right now, the difference between 3.5% and 3.75% can add up, especially if you’re applying for a 30-year fixed-rate mortgage.

“Along with a low debt-to-income ratio and a strong financial history, a high credit score gets you a low mortgage rate. But why?”

Mr. Burge noted that, “Lenders want to loan to people who have a record of on-time payments to creditors.

“‘If somebody has a high credit score, what that shows us is that they’ve been good on meeting their obligations, whether it be credit cards, car loans or other home loans in the past,’ says Brian Hoovler, a loan production partner with Peoples Home Equity in San Francisco. ‘It means we’re more likely to want to give you a loan because we know you’re going to pay us back.'”

The L.A. Times article explained that, “David Lin, a former director of risk management for consumer credit at Barclays and Citibank, said a score of 700 or higher will result in ‘a pretty good interest rate.’ He says that although you still can qualify for certain loans if your score is under 680, the 700s are where you want to aim to pay the lowest rates…[T]he lending industry carves up the credit score scale into 20-point increments and adjusts the rates it offers borrowers each time a credit score moves up or down by about 20 points. In the industry, this is called ‘loan-level pricing,’ and every time you go down a level, there’s an increase in costs, Hoovler says.”

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