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