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October 14, 2019
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How expensive your mortgage will be due to bad credit?

By: Scott Sheldon
June 21, 2019

If you’re thinking about getting mortgage loan financing, one of the most important things you can do to keep your mortgage costs low and affordable is to maintain a high and healthy credit score. Here’s what you should know when it comes to getting a mortgage with the credit score that you have…

Your credit score is the best barometer of how responsible you are. They want to know if this person has the character, desire and motivation to responsibly make their mortgage payment. If you had late credit payments here and there in the past, past due balances and a pattern of financial irregularity, that could spell trouble for getting a mortgage. In return that lender charges you an extra premium for the extra risk that they perceive you represent to them based on your payment history.

Let’s use an example $400,000 on a 30-year fixed-rate:

620 credit score 5 percent interest rate, you’ll pay $373,023 over the total term of the loan

660 credit score 4.625 percent interest rate, you’ll pay $340,360 over the total term of the loan

680 credit score 4.375 percent interest rate, you’ll pay $318,970 over the total term of the loan

700 credit score 4.125 percent interest rate, you’ll pay $297,875 in interest over the total term of the loan

740 or higher credit score 3.875 percent interest rate, you’ll pay $277,141 over the total term of the loan.

The above is not an offering of credit, but rather an illustration of the possible relationship your credit score would translate to in cost expressed over the term of the loan.

For a little over 100 points in credit score that’s an extra interest expense of nearly $96,000 over the term of 360 months on a 30-year fixed-rate mortgage. This compares the loan cost with a 740 score vs. a 620 score. That’s incredibly expensive spread.

If you have an issue with a creditor, if something is not right between you and a financial services arrangement, don’t just stop paying and let the account go to a derogatory status, resolve it and even if it means you having to take it in the shorts and here’s why…

Your future home loan could end up costing you significantly more money than just paying the $20 Macy’s bill for example.

These are some things to think about when determining whether you should get a loan.

Pay off your credit cards in full every single month. All the financial experts out there that tell you to carry debt, they’re wrong, carrying debt hurts you for getting a mortgage because it counts against your debt to income ratio. Always consider the source.

Pay all your bills on time or early

Don’t let any of your previous debts go to collections

Don’t just refuse to pay a bill and let the balance grow and accumulate with penalties and interest

If you’re not in a financial position to use the credit cards and pay them off in full each month, work towards keeping your credit card balances to no more than 25 percent of the total allowable limit. That means if you have a credit card for $1,000 you don’t want the balance to ever be more than $250 ever on that one account.

Moral of the story? Follow the golden rule. He who has the money makes the rules. This means the creditors make the rules and following the rules and making good financial decision will yield you a low rate, low payment home mortgage.

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com