Although mortgage savings may be harder to come by in a high interest rate environment, one step borrowers can take to potentially lower their monthly mortgage payments is to improve their credit scores.
A recent Zillow Analysis said borrowers with an “excellent” credit score – between 760 and 850 – could save up to $103,626 in mortgage interest payments over the life of a 30-year fixed-rate loan, based on the current price of a typical home, $354,165. Buyers with “fair” credit scores – between 580 and 669 – can pay up to $288 more on their monthly mortgage payment than those with “great” credit.
“When considering buying a home, the best first step you can take is to fully understand your financial situation, what you can afford, and your outstanding debts or obligations,” said Libby Cooper, vice president of Zillow. Home Loans.
She added that some steps low-credit borrowers could take to improve their scores include disputing any reporting errors and paying off as much debt as possible. This could increase the home loan a borrower qualifies for and potentially help them save hundreds in monthly mortgage payments.
If you think you’re ready to shop around for a mortgage, consider using Credible Marketplace to help you easily compare interest rates from multiple lenders in minutes.
HOME PRICE GROWTH SLOW FURTHER IN JUNE: CORELOGIC
Equifax sent bad credit scores to lenders
Zillow’s analysis shed light on the high cost of reporting errors by any of the big three credit bureaus for borrowers. Equifax recently revealed that it sent poor credit scores to lenders, potentially affecting borrowers’ interest rates or even causing their loan applications to be turned down.
Equifax said as many as 300,000 people have experienced a score change of 25 points or more, enough to move a borrower’s credit rating from good to fair or from fair to poor. However, lenders typically pull scores from all three credit bureaus when underwriting a mortgage,
Fannie Mae and Freddie Mac probably only bought a small number of loans affected by bad credit, according to the wall street journal. Mortgage lenders who may have purchased higher-rated loans before the error was disclosed owed money to government-sponsored entities (GSEs). GSEs should, conversely, reimburse lenders for fees charged on loans underwritten at lower scores.
If you want to take advantage of current mortgage rates, you might consider refinancing your loan to lower your monthly payment. Visit Credible to find your personalized interest rate without affecting your credit score.
REPORT: HOUSEHOLD DEBT EXCEEDED $16,000,000 IN Q2
High interest rates could mean borrowers are locked in longer
The current high interest rate environment only exacerbates the situation for borrowers with low credit ratings, as it leaves them little room to refinance at higher rates, even if their credit rating improves. , Zillow said. This potentially leaves many borrowers stuck longer with the high cost of poor credit.
Homebuyers nationwide are also facing record house prices, adding to affordability issues. House prices rose 15.8% a year in July, according to CoreLogic. Meanwhile, borrowing rates have roughly doubled since last year, when rates were below 3%, according to Freddie Mac Data. Mortgage rates have fluctuated this year, but currently hover around 6%.
One silver lining to rising house prices is that Americans have accumulated a record amount of equity in their homes. According to data reported by ATTOMreal estate data curator.
Rick Sharga, executive vice president of market intelligence at ATTOM, said that after the continued appreciation of home prices, “it’s no surprise that the percentage of equity-rich homes is the highest than we’ve ever seen and that the percentage of seriously underwater loans is the lowest.”
Sharga noted that even if home price appreciation begins to slow, homeowners are likely to continue to leverage the record amount of equity they have for the remainder of 2022.
If you want to take advantage of rising home prices, you might consider taking out cash refinancing to help pay off debt or fund home improvement projects. Visit Credible to find your personalized interest rate without affecting your credit score.
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