A new Zillow analysis out Tuesday shows that home buyers with a lower credit score pay thousands of dollars more for the same home than a buyer with an excellent credit score.
The new Zillow® analysis finds that nationally, a borrower with an “excellent” credit score could get a mortgage with a 4.50% Annual Percentage Rate. A similar borrower with a “fair” credit score could get a 5.10% 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. “Home buyers 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.”
Home buyers 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 |
