By Laura Haverty
If you need a mortgage to buy a house, your credit score may be more important than you realize. Most lenders use FICO® Scores, developed by Fair Isaac Corporation, which typically range from 300-850 points, to gauge creditworthiness. The higher your score, the better track record you have in paying debt, and the lower the credit risk to your potential lender.
Just a few points one way or another can affect the interest rate you’ll be offered. Say you want to finance a $250,000 home with a 30-year fixed-rate loan and plan to put 20% ($50,000) down. With an interest rate of 4%, your estimated monthly mortgage payment (excluding property taxes and homeowners insurance) would be $1,194, and you’ll pay $179,674 in interest over the life of the loan.
Using those same parameters but with an interest rate of 4.50%, your mortgage payment would increase to $1,267, and you’d pay $206,017 in interest over the life of the loan.
At 5%, the monthly payment goes up to $1,342, and you’d pay $233,139 in interest over the life of the loan.
Use our calculator to see how interest rates impact your monthly mortgage payments.
Improving Your Score
If your credit score is on the low side, an experienced military mortgage advisor like Chip Briggs, the branch manager for AAFMAA Mortgage Services LLC (AMS) in Virginia Beach, can help you develop short- and long-term credit goals.
For instance, if you don’t have a credit history, or your accounts are inactive, he recommends opening a loan with a local credit union. In effect, the borrower takes the loan and pays it back incrementally. Those payments are tracked by the credit bureaus. After several months of on-time payments, the member’s credit score should start to increase.
He also counsels people on credit utilization, which is the amount of your credit balance as compared to your credit limits. A good rule of thumb that he advises is to keep credit utilization under 30 percent for all your credit cards and credit lines. Plus, he encourages people to understand the interest rates and terms on their credit cards, and personal and auto loans, so they can get the best rates possible by shopping around and checking with multiple lenders.
“The bottom line is that if you’re willing to do the work, we can help you improve your credit score and get you a better interest rate.”
“When it comes to a mortgage, I put together a plan, custom-made for each person’s needs,” says Briggs.
We Can Help
AAFMAA Mortgage Services, part of the longest-standing not-for-profit, member-owned association exclusively for servicemembers and Veterans, can help you understand how to strengthen your credit score and prepare for homeownership. We offer a wide range of low-rate and low-cost mortgages designed to meet the needs of home buyers and homeowners.
Get a free mortgage assessment so you can understand your options. There’s no obligation – contact us today. We will let you know whether you qualify or not, and what makes the most sense for you.