Credit Scores

 

Interest paid on a mortgage can add up to hundreds of thousands of dollars over the life of the loan. The most influential determinant of your mortgage rate will be your credit score. The higher your score, the lower the interest rate. On a loan as large as a mortgage, a mere percentage point up or down can add up to a significant amount of money.

 

 

Not only are credit scores more vital than ever when it comes to getting a good rate on a home loan, but they will influence whether you can even get a loan at all.

 

Credit is so tight and lenders are so skittish that buyers below a certain threshold, typically a FICO score of 620, have a better chance of striking oil in their bathtub than securing a mortgage. It's possible, but will require some digging.

 

Standards have not always been so restrictive; the industry has changed in recent years.

"It's changed twofold: First there is a minimum score that you need to have to even be considered for a mortgage regardless of compensating factors such as your income and your assets. And unless you have top-tier credit, you're not going to qualify for the best programs, terms and conditions," says Louis Spagnuolo, vice president of mortgage banking at WCS Lending in Boca Raton, Fla.

 

Though the tiers go up all the way to 850 on the FICO scale, a score of 740 or more should qualify for the best mortgage rates from most lenders. Depending on the lender, the mortgage rates offered to the highest and lowest credit tiers can vary as much as a full percentage point and a half, says Spagnuolo.

The myFICO.com Web site illustrates the variation in loan pricing across the tiers of credit. The difference in the monthly payment for a $300,000 loan between the highest and lowest scores is nearly $300, which over 30 years adds up to more than $100,000. That's money better invested in your retirement account than spent in servicing a home loan