Credit, with debt-to-income ratio and equity, is a critical factor in determining mortgage loan approval. And, for approved applicants, credit score plays a major role in determining loan costs.
For example; let’s assume a mortgage amount of $400,000, 80% of a $500,000 value, for either a purchase or refinance with no cash-out submitted to a typical lender. Using a score of 740 as a base, the cost to a borrower with a score of 720 – 739, increases by $1,000. At 699, cost increases by $4,000 and at 620, the lowest score allowed, additional cost is $11,000! For a refinance with cash out, at a 70% LTV, with a 739 score, the cost would be $1,500 additional and at 620, $4,000 more!
As you can see, for a cash-out refinance for a borrower with the lowest allowable score, cost would be $15,000 more than for a borrower with a 740 or higher score! The top score for each primary credit repository is 850 and there are a great many factors that affect scores. Timely payment is only one of them.
As this article exemplifies, credit scores are important. If your scores need a little improvement, the last thing I recommend, however, is a credit repair company. Numbers of open accounts, balance owed to credit limit and a number of other factors can be adjusted without the help of so called “experts” and it can be done with none of the often extremely high fees associated with some companies. I’ve had years of experience in credit (since before scoring existed) and I’m happy to help with some free recommendations if you like.
