WASHINGTON – July 3, 2018 – Homebuyers with a lower credit score pay thousands of dollars more for the same home than a buyer with an excellent credit score.

A Zillow analysis conducted in May finds that nationally, a borrower with an "excellent" credit score could get a mortgage with a 4.5-percent annual percentage rate. A similar borrower with a "fair" credit score could get a 5.1-percent 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. 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. "Homebuyers 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."

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 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.

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