Low credit scores can cost buyers a high price when buying a home, according to a new Zillow analysis.
The study found that a borrower with an “excellent” credit score (above 760) could get a mortgage with a 4.50% Annual Percentage Rate, while a similar borrower with a “fair” credit score (often between 640 and 679) could get a 5.10% rate–a difference of $21,000 over the lifetime of a 30-year mortgage. Based on national home prices, a borrower with a fair credit score could pay roughly $720 more per year in mortgage payments than if their credit were “excellent,” or 7% more during the course of the loan.
The discrepancy varies by location, increasing in more expensive markets. For example, In San Jose, Calif., 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. The cost of low credit is less severe is less expensive markets, like Cincinnati, where having excellent credit might save up to $12,000 over the life of a loan on the typical home. Homebuyers 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 with only a difference of $9,000 over the course of the loan.
A third of all buyers analyzed in the study said determining how much home they could afford was a challenge, making it the most frequently named financing concern during the home buying process, according to Zillow. 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.
| 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 |
