Home Purchasing Power

Your credit score determines your Home and Auto Purchasing Power. Most do not know that a few points can mean thousands more in purchasing power. With home and auto prices increasing, improving your purchasing power can give you an edge.

When you look for a new home, you most likely have a monthly payment in mind that you can afford to pay for a mortgage.

That payment will determine whether you get the smaller home, the middle-sized home, or the larger home. How? Let’s look at the options.

Which House Do You Want for a $1,800 Monthly Payment?

With 5% for a down payment, you determine that a monthly payment of $1,800 on a 30 year mortgage is the most you can pay for a new home. What can you purchase with a $1,800 payment and 5% down?

It depends on your Classic FICO® Credit Scores.

30 Year Conforming Mortgage

5 Different FICO Scores
Credit Score Interest Rate Principal & Interest Taxes & Insurance Monthly Mortgage Insurance Total Payment Loan Amount
677 3.375% $1,289 $200 $311 $1,800 $291,550
683 3.125% $1,348 $200 $252 $1,800 $314,700
718 3.00% $1,386 $200 $214 $1,800 $328,800
726 2.875% $1,413 $200 $187 $1,800 $340,500
761 2.75% $1,485 $200 $115 $1,800 $363,700

FICO Scores impact the interest rate, and also the monthly mortgage insurance on conforming mortgages. Both the interest rate and the monthly mortgage insurance will have a huge impact on your purchasing power.

Five different FICO credit scores are listed on the left side of the given table. The corresponding interest rates are listed in the second column between 2.75% and 3.375% on a 30 year mortgage.

The monthly mortgage insurance is listed in the fifth column. The monthly mortgage insurance is also determined by the corresponding FICO score.

Your 25% Increase in Home Purchasing Power

With this example, you can purchase a home for $291,500 and have a $1,800 mortgage payment with a 677 FICO score. Or with a 761 FICO score, you can purchase 25% more home and have a mortgage balance of $363,700 – all while maintaining an $1,800 mortgage payment.

Think about that – 25% more home. What can you do with that? You could purchase a home with an extra room, or more square footage. There are all kinds of options that can be open to you.

Small Adjustments Have Huge Savings to You

Lenders adjust interest rates usually every 20 points in a FICO Score. A 683 FICO Score can purchase a home and have a mortgage of $314,700 while a 677 FICO score (just six points lower) can only a mortgage of $291,550 – with both having the same mortgage payment of $1,800.

A 726 FICO score can have a mortgage payment of $1,800 with a balance of $340,500 while a 718 FICO score can only borrow $328,800 with the same $1,800 payment.

Higher FICO Scores Equal Greater Purchasing Power

Why is My Credit Plan so critical to your purchasing power, it gives you step-by-step instructions to improve your FICO Scores so you can have grater purchasing power.