Credit Score For First Time Homebuyers How You Can Improve Your Credit Score Here ph
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Purchasing a home for first time homebuyers in today’s housing market can turn out to be a financially sound investment based on current home values and mortgage rates. However, the most important factor first time homebuyers should be aware of is their credit score and how it can affect their long term financial obligations when it comes to obtaining a mortgage. It is obvious that your credit score impacts the interest rates you receive when financing anything, this is especially true when financing a home. In order to obtain the best mortgage possible it is very important that a homebuyer understands what their score is and why it may be important to increase your score before purchasing a home. A first time homebuyer with a 620 credit score is likely to get a lower interest rate and interest rate credit than a borrower with a 780 score because of the credit risks that are identified with a lower credit score. Taking the time to improve your credit score will likely help you save tens of thousands of dollars over the life of the loan and a few thousand dollars in upfront costs. For example, let’s say borrower A has a credit score of 620 and is looking to purchase a home on an FHA mortgage with 3.5 percent down on a $130,000 home. As of August 23, 2012 the best rate I can offer for this loan with no closing costs is 3.750 percent. On this particular mortgage the month principle and interest payment come to $580, over 30 years that equates to $208,800. Borrower B is purchasing the same home but has a credit score of 780, in which they would be able to obtain a 3.500 percent interest rate with no closing cost. Borrower B would have a monthly principle and interest payment of $563 which equates into 30 years of payments totaling $202,680. That’s a total savings of $6,120 over 30 years just for fixing your credit and improving your credit score. Additionally, if borrower A wanted the same 3.5 percent interest rate he would have to pay an additional $1,900 in closing costs. In this particular scenario, borrower A would have the same financially sound mortgage as borrower B if they are able to come up with $6,450 for the down payment and rate buy down combined compared to borrower B just having to bring in their 3.5 percent down of $4,550. Although $6,000 over 30 years does not add up to a lot of money on a monthly or even yearly basis, taking the time to improve your credit score is well worth the effort especially for first time homebuyers with little money to initially put down on the purchase of a new home.
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