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Home sweet home: buying can be trying



Your credit score directly affects the interest rate on your mortgage. Basically, high credit scores lower your interest rates, while low scores cause them to rise. If I already have a high credit score, what else can I do to lower my mortgage rates? If you can afford higher monthly payments, then opting for a shorter loan—a 15-year instead of a 30-year loan—can help reduce your interest rate. Short-term loans cost banks less money. In appreciation, your bank might reward you with an interest rate as much as one percent lower than that of a long-term loan.


If your score is 580 or better, you can apply for a government-backed loan with the Federal Housing Administration. In many cases, FHA loans have made it possible to qualify for a home loan with a low credit score.


Once you’ve settled on a down payment, it’s important to take stock of your closing costs. Closing costs often run between two to three percent of your total loan. Other fees include the loan origination fee, the loan application fee, the title services fee and appraisal fee. Additionally, you might consider setting up an escrow account, which guarantees 12 months of property taxes and homeowner’s insurance.


The most cost-effective way to manage your closing costs is to keep them separate from your mortgage. Remember, you’re paying interest on anything that’s part of your mortgage, so why increase that amount? If you can afford it, pay your closing costs separately.

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What You Need to Know:

There are various types of credit scores, and lenders use a variety of different types of credit scores to make lending decisions. The credit score you receive is based on the VantageScore 3.0 model and may not be the credit score model used by your lender.

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