Money & The Economy

‘Fair’ credit rating can cost home buyers an extra $21,000 in mortgage costs

Homebuyers with a lower credit score pay thousands of dollars more for the same home than a buyer with an excellent credit score.

new report finds that nationally, a borrower with an “excellent” credit score could get a mortgage with a 4.50 percent Annual Percentage Rate. A similar borrower with a “fair” credit score could get a 5.10 percent rate. Over the lifetime of a 30-year mortgage, this means a buyer with a fair credit score can end up spending $21,000 more than a buyer with an excellent credit score for the typical U.S. home according to analysis from Zillow.

That difference is magnified in expensive markets. In addition to high home prices, the penalty for a lower credit score tends to be higher in more expensive areas. In San Jose, where the median home value is $1.3 million, a buyer with a lower credit score can end up paying $129,000 more than a buyer with an excellent credit score over the full life of the loan.

Even if a homeowner doesn’t pay out the full 30-year term on a loan, the annual costs of a fair credit score can add up. A buyer with a fair credit score could pay $700 more every year on the typical U.S. home than someone with an excellent score.

A third of all buyers said determining how much home they could afford was a challenge, making it the most frequently named financing concern during the home buying process[ii]. Beyond the list price of a home, other costs like mortgage interest, property taxes and homeowners insurance can add up, impacting the overall affordability for buyers.

“When you buy a home, your financial history determines your financial future,” said Zillow senior economist Aaron Terrazas. “Homebuyers with weaker credit end up paying substantially higher costs over the lifetime of a home loan. Of course, homeowners do have the option to refinance their loan if their credit improves, but as mortgage rates rise this may be a less attractive option.”

Homebuyers with excellent and fair credit scores in Pittsburgh see the smallest difference in mortgage rates, and as a result, also see the smallest difference in lifetime mortgage costs among the country’s 35 biggest markets. A buyer with a fair credit score would pay about $9,000 more on the median Pittsburgh home than someone with excellent credit.

Metro

Median
Home Value
March 2018

Estimated
APR with
Excellent
Credit

Estimated
APR with
Fair Credit

Estimated
Total Home
Cost with
Excellent
Credit

Estimated
Total
Home Cost
with Fair
Credit

United States

$213,100

4.50%

5.10%

$311,000

$332,000

New York, NY

$431,600

4.44%

5.04%

$625,000

$670,000

Los Angeles-Long Beach-Anaheim, CA

$645,200

4.50%

5.12%

$942,000

$1,011,000

Chicago, IL

$218,300

4.54%

5.09%

$320,000

$341,000

Dallas-Fort Worth, TX

$227,400

4.61%

5.09%

$336,000

$355,000

Philadelphia, PA

$228,200

4.60%

5.09%

$337,000

$356,000

Houston, TX

$196,200

4.58%

5.11%

$289,000

$307,000

Miami-Fort Lauderdale, FL

$269,500

4.49%

5.07%

$393,000

$420,000

Atlanta, GA

$198,000

4.59%

5.12%

$292,000

$310,000

San Francisco, CA

$938,200

4.53%

5.13%

$1,374,000

$1,472,000

Detroit, MI

$148,000

4.75%

5.18%

$222,000

$234,000

Riverside, CA

$357,100

4.44%

5.06%

$517,000

$556,000

Phoenix, AZ

$252,800

4.51%

5.09%

$369,000

$395,000

Seattle, WA

$492,200

4.43%

5.02%

$712,000

$763,000

Minneapolis-St Paul, MN

$259,100

4.50%

5.06%

$378,000

$403,000

San Diego, CA

$585,300

4.45%

5.09%

$850,000

$914,000

St. Louis, MO

$159,600

4.70%

5.18%

$238,000

$252,000

Tampa, FL

$201,000

4.57%

5.09%

$296,000

$314,000

Baltimore, MD

$264,400

4.53%

5.09%

$387,000

$413,000

Denver, CO

$396,800

4.45%

5.05%

$576,000

$617,000

Pittsburgh, PA

$137,900

4.87%

5.26%

$210,000

$219,000

Portland, OR

$389,100

4.45%

5.06%

$564,000

$606,000

Charlotte, NC

$194,400

4.57%

5.09%

$286,000

$304,000

Sacramento, CA

$401,900

4.47%

5.00%

$584,000

$622,000

San Antonio, TX

$183,600

4.64%

5.10%

$272,000

$287,000

Orlando, FL

$224,200

4.55%

5.07%

$329,000

$349,000

Cincinnati, OH

$156,400

4.74%

5.19%

$235,000

$247,000

Cleveland, OH

$139,100

4.80%

5.28%

$210,000

$222,000

Kansas City, MO

$177,300

4.66%

5.15%

$264,000

$279,000

Las Vegas, NV

$260,200

4.49%

5.08%

$379,000

$406,000

Columbus, OH

$178,900

4.63%

5.12%

$265,000

$281,000

Indianapolis, IN

$150,100

4.70%

5.23%

$224,000

$238,000

San Jose, CA

$1,252,400

4.54%

5.13%

$1,836,000

$1,965,000

Austin, TX

$291,600

4.50%

5.07%

$425,000

$454,000

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Carl Fox

Carl Fox is the senior money and finance writer for Conservative Daily News. Follow him in the "Money & The Economy" section at CDN and see his posts on the "Junior Economists" Facebook page.

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