According to a recent report by consumer credit reporting company Experian, the average credit score in the United States is 698 based on the VantageScore 3.0 scoring model. In New Mexico, the average score is 683. The highlight of the report, however, was that a difference of just a few points can make all the difference in monthly payments and the amount of interest you pay. pays over the life of their mortgage.
Local mortgage lenders typically sell these loans to investors who operate in the secondary mortgage market. These investors fall into three categories; government sponsored companies (GSEs), US government and private investors. Freddie Mac and Fannie Mae are both GSEs and together held about 62 percent of all mortgages in 2020. Ginnie Mae, who is fully owned by the US government and buys the Federal Housing Administration (FHA), Veterans Affairs (VA) ), Rural Housing Service (RHS) and mortgages on public and Indian housing (PIH) are responsible for about an additional 15%. Private investors, such as pension funds, insurance companies, large banking institutions and securities dealers, buy the remaining 23 percent.
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It is these investors who set the minimum standards that buyers must meet in order for their loan to be purchased. Local lenders typically have relationships with a number of investors, which allows them to extend loans to the widest range of buyers. It is for this very reason that buyers should shop around before choosing a lender. An example would be a buyer with a credit score of 630, who Lender A says will not qualify because the lender’s investor requires a minimum credit score of 640. This same buyer can easily qualify for the same loan from the lender. B, for which the investor only requires a minimum score of 620.
The score itself is an indicator of risk. Some investors are risk averse and prefer to buy loans from borrowers with high credit ratings. High scores usually indicate good money management and low risk to the lender, mortgage insurance company, and investor. The investor rewards his most creditworthy borrowers with low interest rates. The reverse is true for borrowers with low scores.
So how much do credit scores affect the cost of money? In short, largely. According to the myFico loan cost calculator available to consumers at http://www.myfico.com/credit-education/calculators/loan-savings-calculator/, the monthly payment of principal and interest of a 30 year fixed rate mortgage of $ 200,000 originating in New Mexico on Dec. 8 goes from a low of $ 821 to a high of $ 1,000.
The interest rate and the monthly payment are not the only elements of a mortgage loan affected by credit scores. The difference in the amount of interest paid over the life of the loan also varies significantly. In our example, the total interest paid on a $ 200,000 loan given to a borrower with a score between 760 and 850 would be $ 95,538 at 2.792%. Borrowers with scores between 620 and 639 would pay $ 159,825 at 4.383%. By my fuzzy calculations, this 140 point difference is worth $ 64,287 over the 30-year term of the loan.
Whether it’s buying a home or vehicle, getting just about any type of insurance, or applying for credit, knowing what’s in your pocket helps. credit records. A small mistake on a report can easily lead to higher costs down the line. File verification is free and easy to do. Everyone in the United States is entitled to a free annual review of their credit reports at each of the three credit bureaus: Experian, Equifax, and Transunion. Free access can be obtained by logging into www.annualcreditreport.com. The site is the only portal authorized by the US government to provide free access to all three reports. Errors can be disputed online or by calling toll-free at 877-322-8228. Requests can also be made by writing to the Annual Credit Report Request Service, PO Box 105281, Atlanta, GA 30348-5281.
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Other websites, such as CreditKarma.com, MyFico.com, and NerdWallet.com also offer free access to credit reports and provide tips on how to increase your credit score.
Ultimately, you are the only person on the planet who is responsible for your credit scores. If you haven’t checked your files recently, it might be a good time to do so.
Meet at the fence.
Gary Sandler is a full time real estate agent and owner of Gary Sandler Inc. Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or [email protected]