As you prepare to buy a home, reminders of the importance of your credit score will be everywhere.
Credit scores tell your lender what kind of borrower you will be, and are one of the main factors that determine your mortgage terms.
There are many benefits to buying a house with good credit! Keep reading for some of the perks you can expect as a home buyer with a good credit score, and for help improving your credit score before buying a house, check out these tips.
1. Lower mortgage insurance rates
When you buy a home with a down payment less than 20%, which is often the case for first time home buyers and can be a great way to get into a home, you will almost always pay private mortgage insurance, or PMI.
There are a few different ways PMI can be paid. Single premium PMI is paid upfront, whether in cash all at once or through financing options. Monthly PMI is the most common form, and is paid monthly when you make your mortgage payment. A split premium PMI is a hybrid of the two, where some of the insurance is paid up front, while the rest is added to the monthly mortgage payment. Finally, some lenders offer lender paid PMI, where the lender covers the cost of PMI in exchange for a slightly higher interest rate on the loan.
The most favorable PMI options, including the lowest premiums, will be offered to borrowers with excellent credit scores. This is one way in which buying a house with good credit pays off, literally.
2. Lower interest rate
The interest rate on your mortgage is likely the term you are most concerned about, and that is for good reason. An interest rate change of just half a percent can make a significant difference, equally thousands of dollars over the life of the loan.
Buying a house with good credit means access to the lower interest rates your mortgage lender has available.
3. Better homeowner’s insurance rates
When buying a house with good credit, your credit score will even affect your homeowner’s insurance premiums. Excellent credit opens the door to lower insurance premiums, as well as different insurance options.
Remember: your good credit is your financial reputation to agencies when they decide whether to work with you.
4. Easier, sometimes faster underwriting approval
Underwriters have the important job of reviewing your mortgage application to determine whether you are likely to make your monthly mortgage payments for the foreseeable future. If you don’t have a strong credit score, underwriters will need plenty of other evidence that you are capable of making these payments.
On the other hand, buying a house with good credit shows the underwriters that you have a history of taking on debt with payments you can handle. You may receive final approval faster than you would with a lower credit score.
5. Additional loan options
Looking at more than one mortgage option is a smart financial move. Depending on a variety of factors, you may be able to choose between a conventional loan, an FHA loan, a USDA loan, a VA loan, and more. The better your credit score, the more options will be available to you. When you are buying a house with good credit, you loan officer will be able to show you a longer list of loan options in order to help you find exactly the right mortgage for your needs.
To find out how much you might be pre-approved for, schedule a conversation with one of our loan officers today! And for more information about buying a home, contact us any time.
