It's scary to think that one number can be so influential to your mortgage. After all, nobody wants their poorly thought-out shopping sprees from college to damage their home-buying hopes 15 years later. But let's face the facts: Your credit score can greatly affect your mortgage. In fact, a borrower with a "fair" credit score (commonly between 640 and 679) could pay 7% more for the same home than an otherwise identical borrower with an "excellent" score (above 760) over the life of a 30-year mortgage. For example, in San Jose, California, "fair" credit can really affect your home buying experience. Not only is their median home value a whopping $1.3 million, but 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, really rounding out the "Hey! Guess we're not moving there!" category.
But in certain parts of the country, having a not-so-stellar credit score can be less brutal. According to new research conducted by Zillow, in relatively low-cost housing markets, homes are not only less expensive, but the relative penalty for lower credit is also less severe. So while you are paying more over the life of the loan, it might actually make sense to apply for a mortgage and spend an extra ten thousand dollars on your mortgage now, rather than waiting a couple of years to establish better credit. If you're gunning to be a homeowner but have more "eh" than A+ credit, you should consider taking a look at these five locations.
1. Pittsburgh, Pennsylvania
Homebuyers with fair credit scores see the smallest bump in mortgage rates across the country's 35 biggest markets—only 0.39% (the APR for someone with excellent credit is 4.87%, while it increases to 5.26% for someone with fair credit). Pittsburgh's medium home value is $137,900, and a buyer with a fair credit score would pay only about $9,000 more than someone with excellent credit on the median Pittsburgh home over their 30-year mortgage.
2. Dallas/Fort Worth, Texas
Head deep in the heart of Texas, because the Dallas/Fort Worth area is another spot where there's a small difference in mortgage rates depending on credit score. The median home price is $227,400 in the area, and a prospective home owner with an excellent credit score can expect a rate of 4.61%. But for those with a fair score, it goes up to 5.09%. That means having just a "fair" credit score will only force your total home price up to $355,000—only $19,000 more than someone with excellent credit.
3. Detroit, Michigan
The Motor City is a great spot to score a bargain home, with $148,000 as the median price. And it's not too expensive a place to buy if you have so-so credit. While those with an excellent score will see a 4.75% rate, buyers with a fair credit score can expect a 5.18% APR—a modest 0.43 percentage point jump—resulting in a $12,000 increase in total home price, up to $234,000 from $222,000.
4. St. Louis, Missouri
The Midwest is filled with urban gems where you can score a reasonably priced home. For example, the median home price in St. Louis is $159,000, and there's an 4.7% APR for someone with excellent credit, or a 5.18% APR for someone with fair credit. That 0.48 percentage point increase is a much less significant jump than in other major cities, and will only end up costing you $14,000 more in the long run.
5. Cincinnati, Ohio
The Ohio city is attracting plenty of Millennials eager to capitalize on the median home price of $156,400. If you have excellent credit, you can expect an APR of about 4.74%, but for those with "eh" credit, it only jumps 0.45 percentage points up to 5.19% for fair credit. That results in only $12,000 price increase in total home costs.