If you need a mortgage to buy a house, your credit score may be more important than you realize. Most lenders use FICO® Scores, developed by Fair Isaac Corporation (“FICO”), which typically range from 300-850 points, to gauge creditworthiness. The higher your score, the better track record you have in paying debt, and the lower the credit risk to your potential lender.
Just a few points one way or another can affect the interest rate you’ll be offered. Say you want to finance a $250,000 home with a 30-year fixed-rate loan and plan to put 20% ($50,000) down. With an interest rate of 7%, your estimated monthly mortgage payment (excluding property taxes and homeowners insurance) would be $1,331, and you’ll pay $279,018 in interest over the life of the loan.
Using those same parameters but with an interest rate of 7.50%, your mortgage payment would increase to $1,398, and you’d pay $303,434 in interest over the life of the loan.
At 8%, the monthly payment goes up to $1,468, and you’d pay $328,310 in interest over the life of the loan.
Use our calculator to estimate the home price you can afford based on your income, debt, and down payment.
Improving Your Score
If your credit score is on the low side, an experienced AAFMAA Mortgage Services LLC (AMS) Military Mortgage Advisor like Dale Poe can help you develop short- and long-term credit goals.
For instance, if you don’t have a credit history at all, or if your credit accounts are inactive, he recommends opening a small personal loan or credit card with a local credit union. In effect, the loan you take out and pay back incrementally will be tracked by the credit bureaus. After several months of on-time payments, your credit score should start to increase.
He also counsels on credit utilization, which is the amount of your credit balance compared to your credit limits. A good rule of thumb he advises is to keep your credit utilization under 30 percent for all your credit cards and credit lines. Meaning, for example, that if you are granted a credit limit of $5,000 on a card, you should only use $1,500 of it. Plus, he encourages understanding the interest rates and terms on your credit cards, as well as any personal and auto loans, so you can get the best rates possible by shopping around and checking with multiple lenders.
"The bottom line is that if you’re willing to do the work, [AMS] can help you improve your credit score and get you a better interest rate.”
"When it comes to a mortgage, I put together a plan, custom-made for each person’s needs,” says Poe.
Don’t forget, you have the right to request one copy of your credit report from each of the three major consumer reporting companies (Equifax, Experian and TransUnion) per year and free of charge. Visit the Consumer Financial Protection Bureau’s website for information on obtaining your credit report.
We Can Help
Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of affordable mortgages designed to meet your needs.
Ensuring AAFMAA Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-422-3622!