When buying a home, several factors affect whether or not you get a loan and what your interest rate will be.
The most important factor that affects your interest rate is your credit score. Lenders see your credit score as an indicator of how likely it is that you'll make your loan payments.
Low scores are seen as higher risk. The higher your score, the more likely it is that you'll be approved for a home loan with a better interest rate.
For a 30-year loan, even one percentage point can have a major impact on how much you have to repay. For example, let's look at a $250,000 loan. At an interest rate of 8%, your monthly mortgage payment would be $1,834. Over the life of your loan, that means you pay about $410,000 in interest, that same loan at 7% would give you monthly payments of $1,663 and your total interest would be just under 349,000. That's over $150 less per month, and over $60,000 in savings throughout your 30-year mortgage.
The better your interest rate, the more you'll save in monthly payments and over time. And while interest rates can change over the years, you can often save as much as 1.5% by increasing your credit score.
There are a lot of numbers to juggle when it comes to buying a home. Boosting your credit score can make a big difference.
