How Credit can Impact Your Mortgage Payments

by Keith Evans 03/15/2020

Image by Tierra Mallorca from Unsplash

One of the most important things to check once you decide to start the home-buying process is your credit score. The three major credit bureaus keep track of how you pay for your credit and how much credit you have. Your score fluctuates, sometimes daily, depending on how much you owe and how many accounts you have. Applying for credit also affects your score. It will usually drop by 2 points every time you apply for a loan or credit card, even if you don’t get the credit.

Applying for a Mortgage

When you apply for a mortgage, the lender pulls your credit score from all three credit bureaus. The lender will advise you whether it has a loan program that will accept your credit score. Some loan programs work with those who have scores as low as 520. Because the credit bureaus deduct points every time you apply, it’s better to call lenders and ask them if they have programs for lower credit scores—if your score is low.

Credit Scores and Interest Rates

Because lenders interpret your credit scores as the inability to manage your credit, they deem the risk of loaning you money quite high. The higher the risk, the higher your interest rate will be. If you have a credit score of 750, you might get a lower interest rate, depending on the current going rate. However, for the same loan, if you have a credit score of 540, you will pay quite a bit more interest. While rates depend on the bank, an example would be that you could pay 9 percent instead of 4 percent if the going rates are at 4 percent.

Changing Your Credit Situation

Before you even start looking for a house, pull your credit from all three major credit bureaus. Look for incorrect data. Dispute the data to correct it. For example, if you see a 90-day late on a credit card that you did not apply for or use, dispute that card to take it off your credit report. It is always a good idea if you pull your credit at least every three months to check for identity theft and incorrect data.

If your credit score is low because you ran into hard times and everything is correct, you could buy down your interest rate and put a larger down payment down on the loan. While you are saving up for the down payment, make sure you pay your bills on time to better your credit score. Try to save up 25 or 30 percent instead of the 20 percent most lenders require. Saving up a few thousand extra dollars also allows you to buy points, which drops your interest rate. A higher down payment also decreases the lender’s risk and might get you a lower interest rate.

The cost of points is usually 1 percent of the total loan. Thus, 1 point on a $100,000 mortgage would cost you $1,000. It could buy you a quarter of a percent interest rate. Instead of an 8 percent interest rate, you would have a 7.75 percent interest rate.

Researching loan programs and making sure your credit is accurate helps you determine whether you want to start the house-hunting process now or save for a higher down payment and wait for your credit score to increase.

About the Author
Author

Keith Evans

I am a Sales Vice President with William Raveis Real Estate in their Regional Office and lead a $25M+ mega agent sales team. I have successfully been involved in investing, buying, wholesaling, developing & selling thousands of Connecticut & New York properties for hundreds of millions of dollars. Known as a creditable "field lieutenant", I have a strong history as a leader who "rolls up his sleeves" and knows what it takes to get the job done. I am additionally the founder and Executive Producer of the media company Selling Connecticut, a podcast series that acts as an independent ambassador; promoting the reasons why people choose to live, work, build careers & businesses in this State.

Prior to joining William Raveis, I started a chain of Keller Williams Realty franchises throughout Connecticut and New York, developing and building four market centers with over 700 total sales agents. During my tenure I created many training programs and hosted daily training sessions in each market center.

Before to opening the doors at KW, I was Managing Director and an Equity Partner at Spencer Trask, a venture capital company in NYC. During this period I lead the spun-off 5 businesses from Fortune 10 companies, held 2 board seats of publicly traded companies and was the Corporate Secretary for Flight Safety.

At Realtor.com (Move), I was a founding member and Vice President of Sales. I was responsible for building their direct sales force of 175 sales reps and 14 district mangers. Unique during this period was the development a training seminar sales method that led to hundreds of thousands of real estate agents purchasing individual web pages; which helped the company attain a highly successful $2B IPO.

I have also held executive positions at IBM and Dun & Bradstreet. I hold a BA in Economics and currently reside with my family on Candlewood Lake in Connecticut.

Current real estate broker licensees in Connecticut and New York.

Professional Specialty

Full-time senior level real estate professional since 1998. Have been involved in buying, wholesaling, renting, developing and selling thousands of properties throughout Connecticut. A Luxury Property specialist and am also proficient in distressed/REO/short sale properties, lead a team of talented real estate agents that provides consultative services to clients.

Areas Covered

Fairfield, Litchfield & New Haven Counties in CT

Westchester, Putnam & Dutchess Counties in NY

Professional Association

National Association of Realtors

Connecticut Association of Realtors

SMART Multiple Listing Service

HGAR Multiple Listing Service

Achievements

Chairman's Elite Designation

Bilingual Talents

Multi-lingual Team with the following competencies:

English

Spanish

Portuguese (Portugal & Brazil)

Experience

Full time Real Estate Broker

Licensed in Connecticut & New York

Owner/Operator - CEO of a Major Real Estate Franchisee

Managing Director Spencer Trask & Co.

Vice President Sales Realtor.com

IBM, Dun & Bradstreet and GE

Held Board Seats at 2 publicly traded companies, Corporate Secretary

Personal

Skilled Negotiator

Excellent Communicator

Customer Oriented

Strong Work Ethic

Education

Western Connecticut State University, B.A., Economics/Marketing

GE Financial Management Program

Licensed Real Estate Broker in Connecticut & New York

Various Leadership Training at: GE, D&B, IBM, KWRI and William Raveis