How Your Credit Score Impacts Your Interest Rate and PMI
Your credit score is one of the most important parts of your loan application.
Specifically, it can make a big impact on your mortgage interest rate and PMI - private mortgage interest.
So let’s talk about how it can affect both of these numbers as you move forward on your home buying journey.
Let’s say you’re buying a home using a conventional loan, for a primary home, with a 5% down payment.
● If your score is 741 or higher, you’re getting the best terms for your scenario. So for a $300K loan amount, your interest rate may be 3% with a principal and interest payment of $1,265.
● With a 700 credit score, the rate would be 3.25% with a $1,306 payment.
● With a 660 credit score, the rate would be 3.5% with a $1,347 payment.
Now, let’s talk about PMI.
If you’re putting less than 20% down and have a conventional loan, chances are you’ll have to pay for PMI.
But, how is it calculated?
There are two major factors that impact PMI:
Your down payment percentage
Your credit score
PMI is calculated based on your down payment percentages meaning the factor that’s used to calculate it is less if you put 10% down versus 3% down.
It’s also affected by your credit score.
Let’s look at the following scenarios for a $300K loan.
Borrower 1 puts 3% down and has a 740 credit score. They pay $125/month for their PMI.
Borrower 2 puts 10% down and has a 680 credit score. They pay $115/month for their PMI.
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