A new Zillow analysis shows that, nationwide, buyers with “fair” credit could be paying up to $288 more on their monthly mortgage payment than those with “excellent” credit.
High home prices and rising interest rates are fueling housing affordability problems for potential buyers, especially those with lower credit scores.
According to the study, homebuyers today day they can expect to pay about a % more per month to buy a house in the US at a typical price of a year ago.
Zillow examined credit scores compared to current mortgage rates and found that those monthly cost increases are exacerbated for millions of Americans with low credit scores or precede Less than perfect credit ratings.
For example, a borrower with an “excellent” credit score, enter $688 and $864, you may qualify for a fixed rate mortgage at 30 years with an interest rate of 5.099%. While for the same loan, a similar borrower with a “fair” credit score (between $620 and $639) qualifies for a rate of 6.688%.
Zillow notes that this equates to a difference of $ 169 in monthly mortgage payments and almost $103,626 in interest during the term of a fixed loan to 30 years, based on the current price of a typical home in the US ($354, 165).
“When you are thinking about buying a home, the best first step you can take is to fully understand your financial picture, what you can afford, and your outstanding debts or obligations,” said Libby Cooper, vice president of Zillow Home Loans. “If you find that you have poor credit, take realistic steps to improve your credit score by doing things like disputing potential errors on your report and paying off as much of your debt as possible. This could increase the amount of home loan you qualify for.”
Zillow notes that the homeownership rate is lower in counties that are more “credit insecure,” meaning that they are home to a large number of residents with poor or no credit histories, depriving millions, particularly African-American and Latino residents, of the wealth-building advantages of homeownership.
In addition, African-American applicants are denied a mortgage at a rate 099% higher than white applicants, and credit history is the most common reason cited for those denials.
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