In its battle to tamp down your homebuyers’ inflation concerns, the Federal Reserve increased interest with a ripple effect through the housing market. More increases are being discussed before year-end. Are you helpless in watching your buyers’ opportunities disappear? Not necessarily.
Here’s what you can control
You can minimize the effect of rising interest rates by getting your clients credit ready. Improving a credit score can shave hundreds off a monthly mortgage payment. Begin immediately with these recommendations:
- Make all bill payments on time, every time and catch up on any overdue bills immediately. Pay down any credit card balance, and stop adding unnecessary charges.
- Determine the credit limit on each card. Set a target to use only 30 percent of the limit or less.
- Do not open any new lines of credit.
- Subscribe to a credit monitoring service to keep aware of changes impacting the credit score.
It takes time to improve a sagging credit score, but it can be done. Once it is elevated, the job of maintaining it is easier since good habits are established.
How much difference can it make?
Using the MyFico Credit Savings Calculator, your buyers can see their credit score’s impact on a monthly mortgage payment.
For example, assume a home purchase of $384,800 (the median existing-home sales price as of September 2022) with a 20 percent down payment, financing $307,840 over 30 years.
A person with a fair FICO score of 620 to 639 would pay an APR of 8.37 percent at current national rates, $2,339 in principle and interest per month, and $534,099 in total interest paid over the life of the loan. However, a buyer with an excellent credit rating of 760-850 pays an APR of 6.781 percent, $2,003 monthly, and $413,237 in interest over the life of the loan.
In this case, an excellent FICO score translates to savings of 1.589 percent in interest, $336 in the monthly payment, and $120,862 over the life of the mortgage. The difference between a fair and great credit score in total savings is substantial.
You cannot “fight the Fed” on rising interest rates, but you can fight to keep the personal interest rate down by building great credit.
For more mortgage conversations you need to be prepared for with the market changes check out our free guide to Three Mortgage Conversations You Need to Have Now!