March 7, 2021

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Home Loans And Your Credit Score: The Cost Of Your Mortgage

Buying a House In the Era of COVID-19

Did you know that credit scores affect more than the simple approval or denial of your mortgage? Your overall costs for the mortgage over the long term will depend in part on your FICO scores, as we’ll explore below.

FICO Scores And Your Down Payment 

You have not one, but TWO FICO score standards to meet when you want to apply for a large loan such as a mortgage. The first standard is from the FHA itself (these are the FHA minimum requirements for the Single Family home loan program) and the second is your lender’s standards. Naturally these will vary from lender to lender.

And your lender’s standards may or may not be higher than the FHA minimum. FHA FICO score minimums begin at 580 or better for maximum financing and the lowest down payment requirement which is 3.5%.

FHA loans technically permit borrowers with FICO scores between 500 and 579 to apply for a loan with a higher down payment–you will be required to make a 10% down payment in such cases. This is how your credit scores affect your home loan beyond a simple “yes” or “no” from the lender about your application.

How FICO Scores Affect The Overall Cost Of Your Home Loan

If you are new to mortgage lending, you might not understand how your credit scores can play a role in the interest rate you are offered by the lender–but potential borrowers soon learn that their FICO score will affect the long-term cost of the mortgage as your lender will offer you an interest rate determined in part by your credit scores. The simple math is this–the better your scores, the better the interest rate offered may be.

The rate is important since you are paying on that interest rate for the lifetime of the loan (unless you sell or refinance, obviously).

A higher mortgage loan interest rate over a 30-year loan term will add up over time and many don’t like that math when comparing a higher rate to a lower one that might be possible for the right applicant.

If your goal is to save money over the loan term, you’ll need to work on your FICO scores to qualify for the lowest rate possible. 

Work On Your Own Credit

You can work on your credit scores yourself; make all your payments on time, every time, and cut your debt to income ratio down as much as possible. This is the beginning of credit repair and you don’t have to pay anybody to do it.

Remember that coming to the home loan process with less than perfect credit is fairly common; work on your own credit scores in the year or more leading up to your loan application and over time your scores will improve.

It is true that it’s possible to lower the interest rate on your mortgage by purchasing discount points upfront, but this is not a good option for everyone.

Buying discount points isn’t a good investment if you don’t plan to stay in the home long-term or for the entire loan term. If you know you’ll sell in five or even ten years, discount points may not be the right choice. Ask a lender or real estate agent about discount points and how you can use them to your advantage…IF they are right for you.

Joe Wallace - Staff Writer

By Joe Wallace

January 19, 2021

Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for for (8) years and is currently the Associate Editor for

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About was launched in 2010 by seasoned mortgage professionals wanting to educate homebuyers about the guidelines for FHA insured mortgage loans. Popular FHA topics include credit requirements, FHA loan limits, mortgage insurance premiums, closing costs and many more. The authors have written thousands of blogs specific to FHA mortgages and the site has substantially increased readership over the years and has become known for its “FHA News and Views”.

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