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How Much Can I Save By Having Good Credit?

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How Much Can I Save By Having Good Credit?

If you’re beginning to shop around for a mortgage, you’re likely very aware of your credit score. You may be wondering just who important those three little digits are. If you are planning ahead, perhaps a couple of years before you will be ready to buy a home, considering how to raise your credit score will seriously pay off in the end. The terms offered to you by a mortgage lender will be based on a few factors, and your credit score is a big one. Boosting your credit score even just 50 points can make a huge impact on your monthly payment and the interest you pay over the life of your loan.

Credit Score Ranges

First of all, it’s important to understand the way mortgage lenders categorize credit scores. There are basically five credit score categories: 300-579 is poor, 580-669 is fair, 670-739 is good, 740-799 is very good, and 800-850 is excellent. Lenders make decisions about approval and the terms of your loan based on which category your credit score falls into, not the exact number. With this in mind, check your credit score and see how close you are to bump it up to the next category.

For example, if you have a 720 credit score, it may be worth the little time and effort to bump your score up to the “very good” level for the sake of a lower interest rate. In general, a credit score over 700 is likely to secure you a good interest rate, but anything in the “very good” category is going to mean the very best rates the lender has to offer.

Savings

There are some mortgage costs that are fixed, like lender fees and appraisals. There are other costs that are dependent on a variety of factors, with credit score being one of the biggest things a lender takes into consideration. The interest rate you get on your loan will be the biggest determination of what you can afford, even more than a down payment. Consider this: let’s say you’re going to buy a $300,000 house.

If you put 20% down and get a 3.5% interest rate, your monthly payment would be $1078 (not taking into account insurance, HOA fees, and property taxes). However, if you bought the same house with 20% down and have a 3% interest rate, your monthly payment would be $1012, meaning $68 every month still in your pocket. Over the life of a 30 year fixed mortgage, that means $24,480 you didn’t spend in interest.

It may seem like a lot to manage, but bringing your credit score up will pay off greatly over the life of your mortgage. Take the time to increase your score before securing pre-approval and you’ll be ready to shop for you home with excellent mortgage terms waiting for you when you find the one.

For more information on mortgages and home loans in Roseville CA or refinancing services for the entire Placer County California area or tips on buying a home, contact my office below or call me any time at (916) 847-7263

More Information for Homeowners

How To Know How Much Equity I Have In My Home

How Best to Take Advantage of Your Home Equity Gains

3 Ways to Know if Refinancing is Right For You

What is the Minimum Down Payment on a House?

What is the Minimum Down Payment for a House

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Many who hope to someday purchase their own home may be dreading coming up with a minimum down payment for a mortgage. Currently, the median existing-home price for the nation is $352,800 as of September 2021. Price is of course higher and lower depending upon where are you live in the country. This number is expected to become even higher as time goes on and the real estate market is staying strong. But the asking price of a home is far less intimidating with the current super low-interest rates that mortgages offer right now. But depending upon the type of mortgage you seek, your down payment requirement could vary.what is the minimum down payment for a house

What is the minimum down payment requirement for a house?

The down payment is the amount of cash you contribute towards the purchase of a home. This is the amount you put down on the home as your share in the ownership. The higher the down payment the less you will need to borrow for the rest of the purchase and the lower your monthly payment will become.

Traditionally most lenders require a down payment for almost every type of home loan they carry. There are some exceptions to rules and certain buyers, but for the most part there are standard requirements across the board that almost every bank requires when setting up a certain type of loan.

  • Most conventional loans will require anywhere from 3% to 15% down depending upon the lender and the exact type of conventional loan.
  • A jumbo loan can be anywhere from as low as 5% up to 20% depending upon the specific lender. This has a larger requirement range as jumbo loans are not backed by federal entities so banks set their own rules as they cannot sell the loan off to a federal entity.
  • An FHA loan most typically will require 3.5% down payment
  • With a VA loan there is no down payment required and the same goes with a USDA loan.

How much is the average down payment for a home in America?

Since each type of loan has its own down payment requirements and is set more specifically within the specific terms of the borrower and the bank offering to lend money some may wonder what the average or most common down payment is for a home.

The National Association of Realtors has shown that the average home buyer makes a down payment of 12% on a mortgage loan. For first-time buyers this number changes, 75% of first-time homebuyers do not put down what is considered the traditional amount of 20%. The average first-time homebuyer in America actually puts down around just 6% on the purchase price of a home. For those that currently own a home and are looking to resell their home and find a new one, 16% is the average down payment. Then there are some buyers who are opting to purchase a home entirely with cash. In September 2021, the total number of cash home purchases was 23% of all sales.

Is it worth putting down a larger down payment?

The answer to this question is it really depends upon your personal financial situation. In some cases, it would be a much better idea to pay more of a down payment and secure a lower monthly mortgage payment. But in some cases, it could be next to impossible to secure such a large amount of money. Some loans offer a lower down payment requirement to help those who may have more difficulty finding such a large sum of cash all at once to get into a home and they still receive a fairly good interest rate.

The best method for choosing what you should put down on a home loan is to talk to a mortgage professional. A mortgage broker is very knowledgeable of all of the mortgage loan options available on the market currently and will have a great idea of what might be the best mortgage product available to you for your home purchase.

More Information for Homeowners

How To Know How Much Equity I Have In My Home

How Best to Take Advantage of Your Home Equity Gains

3 Ways to Know if Refinancing is Right For You

How Often Can I Refinance?

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Once you realize that refinancing can offer a long list of benefits (lowering your monthly payment, cashing out your equity, and getting out of PMI), you will likely want to know how often you can refinance to reap these benefits. The short answer is if you have a conventional loan you’re allowed to refinance as often as you would like. Some lenders do place limits on how soon after the initial closing you can refinance, and FHA loans come with their own timeline as well, but in most cases, there is no legal limit on the number of times you can refinance your mortgage or the amount of time that needs to pass between refinancing.

Is It Worth It?

It’s important to know how to figure out if refinancing, whether for the first time or the fifth time, makes financial sense. The terms of the loan, specifically closing costs and interest rate, will be the most important factors to consider. Generally speaking, if a refinance will bring your interest rate down by at least .05% it will save enough money to be worthwhile. While you can nearly always roll closing costs into the loan itself, you will also be tacking on a small sum to the principal. It is important to have an idea of how long you expect to own the home before selling it in order to calculate whether a refinance is worth it in your specific scenario. A general rule of thumb is if the closing costs of the loan will be recouped within five years or less, the refinance will be worthwhile (assuming you plan to own the property for at least five more years).

Increasing the Loan Term

In most cases, refinancing will either mean a 15 or 30 year term begins at the refinance closing date. Logically, the more you refinance, the longer it will take to pay off your mortgage, as you kick the proverbial can down the proverbial road with each refinance. Often, this still makes financial sense if it allows your monthly payment to be significantly more manageable or provides finances for home improvement or repair.

Meeting Lender’s Standards

While there is no legal limit to how many times or how frequently you can refinance, keep in mind that lenders will still expect you to meet certain standards to qualify for a refinance. This means your income, credit score, and debt-to-income ratio will need to remain as good as, or better than, they were when you closed on your existing mortgage.

Prepayment Penalties

Before you plan to refinance, make sure you know whether there are any prepayment penalties on your existing mortgage. Some lenders offer no prepayment penalties, while others may require you to pay anything you saved in interest by paying off the mortgage early, which is what a refinance will essentially do. Speaking with a qualified mortgage professional can help you determine whether this applies in your specific situation.

So, how often can you refinance? The simple answer is you can refinance every month if you really want to, but it may not ultimately benefit you. Being well informed about the different types of loans, current interest rates, and your expected timeline in your current home will be essential to making the best financial decision in your specific situation. If you’re still not sure if you should refinance again, reach out to a mortgage lender with your detailed questions to find out whether it’s financially worthwhile in your scenario.

More Information for Homeowners

How To Know How Much Equity I Have In My Home

How Best to Take Advantage of Your Home Equity Gains

What Should A Homeowner Do When The Mortgage Forbearance Is Over

3 Ways to Know if Refinancing is Right For You

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Steelman Mortgages Powered by Answer Home Loans Company NMLS ID: 1729528. All information contained herein is for informational purposes only and while every effort has been made to ensure accuracy, no guarantee is expressed or implied. Any programs shown do not demonstrate all options or pricing structures. Rates, terms, programs, and underwriting policies subject to change without notice. This is not an offer to extend credit or commitment to lend. Although and subject to underwriting approval. Some products may not be available in all states and restrictions apply.