Here’s How Much a Good Credit Score Can Save You on Your Mortgage

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Give yourself the best chance of saving money on a home purchase. 

If there’s one thing I’ve learned in my time working as a personal finance writer and editor, it’s that many people’s eyes absolutely glaze over when you introduce the topic of credit scores into the conversation. This really isn’t so surprising, as in many cases, people would rather not think about that three-digit number any more than they have to.

But it is worth thinking about your credit score if you’re dreaming of becoming a homeowner. Why is that? Because having a good credit score can save you a ton of money on your mortgage loan. Let’s take a look at two credit score scenarios and see how much you could save on your home purchase by boosting your credit score.

An astonishing difference

A number you’ll hear often in connection to credit scores and mortgages is 620. That’s because 620 is the minimum score to qualify for a conventional mortgage loan. There are many types of mortgages, but a conventional loan is one not guaranteed by a government agency like the Federal Housing Administration.

Let’s say you have a 620 credit score, and you’re hoping to be approved for a 30-year fixed-rate mortgage loan of $300,000. For your mortgage payment (bear in mind that this is just principal and interest; homeowners insurance, mortgage insurance, taxes, and beyond are not included), how much are you looking at? Your mortgage interest rate is 8.019%, your monthly payment will be $2,205, and you’ll be paying $493,897 in interest over the life of the loan.

But what if you’ve been side-hustling your way to debt payoff and improved your credit score to 800? That same $300,000 mortgage loan over a period of 30 years will cost you $1,882 per month, and you’ll be paying $377,669 in interest over the life of the loan. You qualified for an interest rate of 6.43%. The mortgage rates in our scenarios are a far cry from the 3% rates you might’ve qualified for in early 2022 before rates started to climb, but you can still appreciate how much money you’ll save ($116,228 in interest) with a credit score of 800, versus 620.

It pays to boost your credit score

If you’re hoping to buy a home, you’re already going to be shelling out enough money, so it makes sense to try to save where you can. Take the following steps to improve your credit score before you start talking to lenders or looking at homes for sale:

Knowledge is power: Get a copy of your credit report (free every week through the end of 2023) and see if there’s any weirdness on it. If you see errors, like a delinquent account that isn’t yours, have it removed.The calendar is your friend: If you struggle with paying your creditors on time, now is a great time to get in the habit of it. After all, payment history reflects 35% of your FICO® Score, the scoring model used by many mortgage lenders.High-interest debt is worth getting rid of: If you’re carrying, say, credit card debt, work to pay it down. This will improve your debt-to-income ratio and also free up money you can put aside for your down payment.

It might not be exciting to talk about credit scores, but keeping yours top of mind if it’s time to buy a home is a smart move. Take the time to make your credit score the best it can be and enjoy paying a whole lot less for your new home.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More