Sunday, September 29, 2013

What is more important? Credit Score or Down Payment?

So, is your credit score more important or the size of your down payment when it comes to getting a mortgage on a house?  

Let's take a look. You down payment determines your Loan to Value ratio.  Your LTV and credit score are primary factors in determining your mortgage qualification and the rate your will receive.

To demonstrate how Loan To Value and credit score impact APR, consider these three buyer profile scenarios.
  • Jenny has managed to save up a sizable down payment of 30% on her dream home, but she has always paid for everything in cash and has no credit history so her credit score is only 635.  
  • Amy has a good credit score at 745, but she only has enough for a 5% down payment.  
  • John also has a credit score of 745 but has saved enough to put 20% down. 

Despite their very different profiles, Jenny and Amy would get nearly the same APR (4.98%) on their mortgage, indicating they pose equal risk to the mortgage underwriters. John, however, would get the best rate, nearly 60 basis points lower at 4.41%.
Assuming they have all have $1,000 per month for their monthly mortgage payment, Jenny would be able afford a house of $265,000; John a house of $250,000; and Amy a house of $195,000.

Want to see what your specific situation qualifies for? Contact Paul Johnston today!

Already qualified and ready to buy?  I'm here for ya' as always!

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