If you are a home buyer with only a 5% down payment it is extremely important that your credit score is as high as you can make it. Why?
For a 95% loan to $417,000 the Monthly Mortgage insurance is $188 if your credit score is above 760. But, let that score drop to 681 and the monthly MI goes to $309 and if the score drops further to 668 then the monthly Mortgage Insurance increases to $399.
It seems like only one thing is going on but in fact there are two. The increased Mortgage Insurance also increases the debt ratio and could completely undo a purchase transaction,
Using the MI factor and a 45% debt ratio and the same income for all examples – the qualifying purchase price for the client with a 760 credit score will be $425,000; the credit score of 681 the purchase price will be $414,000 and the purchase price for the 668 score will drop to $398,000.
So, for a 95% purchase the buyer with a lower credit score will pay more and will need to lower the purchase price. One of the first steps in buying a home when the credit score is lower – is – talk to a professional and get the credit score raised !
