How Important Credit Score to Mortgage Rate?

A bonsai plant just for illustration (this is my own photo)

Many Americans believed that there are 3 important things in their life:

- having a family with two kids

- having a house

- having barbecue and fireworks during independent day every year.

In case of a house, some time, certain people can’t have one for “a while” due to several factors, one of them is a “credit score.”

Credit score reflects financial health: the higher the score, the lower the risk. Hence, higher score tend to get loan quite easy with lower mortgage rate.

There are 5 scale range of credit score in the USA, from poor to excellent:

- 300 – 550, poor score

- 550 – 620, subprime score

- 620 – 680, acceptable score

- 680 – 740, good score

- 740 – 850, excellent score

View from a house

To apply for mortgage loans (Fannie Mae or FHA loans), we should have at least 620 credit score. Average credit score for first time home buyers was 684.

As said that higher credit score means best or lower mortgage interest rate. The different of 1% means a lot.

Just to give an idea, if the house price US$ 300 thousands, down payment US$ 50 thousand and 30 year mortgage:

- 5% interest would cost US$ 235 thousands

- 4% interest would cost US$ 180 thousands

It is clear that with 1% less of interest rate, we could save around US$ 55,000. Hope, we should consider our credit score, before applying mortgage loan.