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Homebuyers with Lower Credit Scores Pay an Extra $21,000 in Mortgage Costs

Determining how expensive of a home they can afford was the top-named financing concern for homebuyers

SEATTLE, May 15, 2018 /PRNewswire/ -- Homebuyers with a lower credit score pay thousands of dollars more for the same home than a buyer with an excellent credit score.

A new Zillow® analysis[i] finds that nationally, a borrower with an "excellent" credit score could get a mortgage with a 4.50 percent Annual Percentage Rate. A similar borrower with a "fair" credit score could get a 5.10 percent rate. Over the lifetime of a 30-year mortgage, this means a buyer with a fair credit score can end up spending $21,000 more than a buyer with an excellent credit score for the typical U.S. home.

That difference is magnified in expensive markets. In addition to high home prices, the penalty for a lower credit score tends to be higher in more expensive areas. In San Jose, where the median home value is $1.3 million, a buyer with a lower credit score can end up paying $129,000 more than a buyer with an excellent credit score over the full life of the loan.

Even if a homeowner doesn't pay out the full 30-year term on a loan, the annual costs of a fair credit score can add up. A buyer with a fair credit score could pay $700 more every year on the typical U.S. home than someone with an excellent score.

A third of all buyers said determining how much home they could afford was a challenge, making it the most frequently named financing concern during the home buying process[ii]. Beyond the list price of a home, other costs like mortgage interest, property taxes and homeowners insurance can add up, impacting the overall affordability for buyers.

"When you buy a home, your financial history determines your financial future," said Zillow senior economist Aaron Terrazas. "Homebuyers with weaker credit end up paying substantially higher costs over the lifetime of a home loan. Of course, homeowners do have the option to refinance their loan if their credit improves, but as mortgage rates rise this may be a less attractive option."

Homebuyers with excellent and fair credit scores in Pittsburgh see the smallest difference in mortgage rates, and as a result, also see the smallest difference in lifetime mortgage costs among the country's 35 biggest markets. A buyer with a fair credit score would pay about $9,000 more on the median Pittsburgh home than someone with excellent credit.

Metro

Median
Home Value
March 2018

Estimated
APR with
Excellent
Credit

Estimated
APR with
Fair Credit

Estimated
Total Home
Cost with
Excellent
Credit

Estimated
Total
Home Cost
with Fair
Credit

United States

$213,100

4.50%

5.10%

$311,000

$332,000

New York, NY

$431,600

4.44%

5.04%

$625,000

$670,000

Los Angeles-Long Beach-Anaheim, CA

$645,200

4.50%

5.12%

$942,000

$1,011,000

Chicago, IL

$218,300

4.54%

5.09%

$320,000

$341,000

Dallas-Fort Worth, TX

$227,400

4.61%

5.09%

$336,000

$355,000

Philadelphia, PA

$228,200

4.60%

5.09%

$337,000

$356,000

Houston, TX

$196,200

4.58%

5.11%

$289,000

$307,000

Miami-Fort Lauderdale, FL

$269,500

4.49%

5.07%

$393,000

$420,000

Atlanta, GA

$198,000

4.59%

5.12%

$292,000

$310,000

San Francisco, CA

$938,200

4.53%

5.13%

$1,374,000

$1,472,000

Detroit, MI

$148,000

4.75%

5.18%

$222,000

$234,000

Riverside, CA

$357,100

4.44%

5.06%

$517,000

$556,000

Phoenix, AZ

$252,800

4.51%

5.09%

$369,000

$395,000

Seattle, WA

$492,200

4.43%

5.02%

$712,000

$763,000

Minneapolis-St Paul, MN

$259,100

4.50%

5.06%

$378,000

$403,000

San Diego, CA

$585,300

4.45%

5.09%

$850,000

$914,000

St. Louis, MO

$159,600

4.70%

5.18%

$238,000

$252,000

Tampa, FL

$201,000

4.57%

5.09%

$296,000

$314,000

Baltimore, MD

$264,400

4.53%

5.09%

$387,000

$413,000

Denver, CO

$396,800

4.45%

5.05%

$576,000

$617,000

Pittsburgh, PA

$137,900

4.87%

5.26%

$210,000

$219,000

Portland, OR

$389,100

4.45%

5.06%

$564,000

$606,000

Charlotte, NC

$194,400

4.57%

5.09%

$286,000

$304,000

Sacramento, CA

$401,900

4.47%

5.00%

$584,000

$622,000

San Antonio, TX

$183,600

4.64%

5.10%

$272,000

$287,000

Orlando, FL

$224,200

4.55%

5.07%

$329,000

$349,000

Cincinnati, OH

$156,400

4.74%

5.19%

$235,000

$247,000

Cleveland, OH

$139,100

4.80%

5.28%

$210,000

$222,000

Kansas City, MO

$177,300

4.66%

5.15%

$264,000

$279,000

Las Vegas, NV

$260,200

4.49%

5.08%

$379,000

$406,000

Columbus, OH

$178,900

4.63%

5.12%

$265,000

$281,000

Indianapolis, IN

$150,100

4.70%

5.23%

$224,000

$238,000

San Jose, CA

$1,252,400

4.54%

5.13%

$1,836,000

$1,965,000

Austin, TX

$291,600

4.50%

5.07%

$425,000

$454,000

Zillow
Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with the best local professionals who can help. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow's Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ:Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

[i] Zillow analyzed more than 100,000 mortgage quotes from lenders participating in Zillow Mortgages between March 18May 8, 2018, limited to 30-year fixed rate conventional and conforming purchase loans for borrowers with no self-reported history of foreclosure or bankruptcy. This data was used to predict quoted annual percentage rates based on information provided to lenders for typical borrowers with varying credit scores. We grouped credit scores into five categories: Excellent > 760, Very Good 720 – 759, Good 680 – 719, Fair 640 – 680, Poor < 640. Using those APR estimates for different regions we calculated the total cost of buying the median valued home in each metro with a 20% down payment and a 30-year fixed rate mortgage.  The sample size for poor credit scores was too small to predict APR estimates.
[ii] https://www.zillow.com/report/2017/buyers/challenges/

 

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