Buying a Home? This Move Could Save You More Than $100,000

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  • The interest you pay on a mortgage can really add up over time.
  • The lower an interest rate you're able to lock in, the more savings you can reap.

It's definitely an effort worth making.

In mid-2020, mortgage rates dropped to record lows in response to economic turmoil fueled by the COVID-19 outbreak. Those wonderfully low borrowing rates then remained available to home buyers through the start of 2022.

But over the past seven months, mortgage rates have risen at a rapid clip. In fact, they've gotten so high that they've no doubt pushed some buyers out of the market.

Now the reality is that even during periods of higher borrowing rates, there are things you can do to reap some savings on a mortgage. First, you can shop around with different lenders and compare offers. You never know when one lender might surprise you with a rate that's more competitive than expected.

You can also pay attention to how mortgage rates are trending in general and try to time your application accordingly. Even during periods when rates are higher, you may find that they drop for weeks at a time.

But if you want to save a lot of money on a mortgage, it pays to work on boosting your credit score. Doing so could actually end up putting more than $100,000 back in your pocket in the course of paying off your home.

What could an extra $100,000 do for you?

A recent analysis from Zillow has found that home buyers with lower credit scores could end up paying $103,626 more in the course of a 30-year mortgage than borrowers with excellent credit based on the current average home price of $354,165. That's a huge difference.

Mortgage lenders tend to offer lower interest rates to borrowers with strong credit because they take on less risk in the course of loaning them money. On the other hand, applicants with less-than-stellar credit will often get stuck with higher borrowing rates to compensate for the risk lenders are taking on. But those higher rates could translate to a lot of extra money in the course of paying off a mortgage.

Specifically, Zillow found that buyers with fair credit -- scores between 620 and 629 -- are paying $288 more per month on their mortgages than buyers with excellent credit -- scores between 760 and 850. That's because those on the lower end of the credit score spectrum are paying an average 30-year mortgage interest rate of 6.688%, compared to the 5.099% borrowers with stronger credit are paying.

It pays to boost your score

You may not be able to control the fact that mortgage rates are higher today and home prices are through the roof. But one thing you can do to eke out some savings in the course of buying and paying off your home is boost your credit score.

The first step in that regard should be to get a copy of your credit report and check it for errors. You don't want a silly mistake dragging your score down needlessly.

Next, make sure to pay all incoming bills on time. Your payment history carries more weight than any other factor when calculating your credit score, so it's important to establish a solid one.

Finally, work on chipping away at existing credit card debt. Doing so could lower your credit utilization ratio, which is another big factor in calculating your credit score.

It's not a secret that mortgage borrowers with strong credit tend to enjoy more favorable interest rates on their loans. But you may be surprised to learn that poor credit could cost you over $100,000 in interest payments in your lifetime. If you'd rather save that money, do what you can to boost your credit score before applying for a mortgage.

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