Photo: Robert Clark

US homebuyers with less than perfect credit will end up paying substantially more for the same home than buyers with higher credit scores.

Buyers with a fair credit rating in many of the country’s hottest markets — New York City and San Jose, CA, for example — can end up paying $50,000 or more in mortgage costs over the lifetime of the loan, according to a report released earlier this week by the listing site Zillow.

The added cost could sideline some buyers who were already at the high-end of their homebuying budget.

“Homebuyers with weaker credit end up paying substantially higher costs but 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,” Zillow Senior Economist Aaron Terrazas says in the digital release.

Nationally, buyers with a fair credit score (640-680) will end up paying about $21,000 more over the life of a mortgage compared to a buyer with excellent credit (760 and above) — this estimate was based on a 30-year mortgage on a median priced home ($213,100) with an interest rate of 4.5 percent for borrowers with excellent credit and 5.1 percent for borrowers with fair credit.

Over the full life of a loan, the difference in interest rates would bring the total home cost to $311,000 for buyers with excellent credit and $332,000 for buyers with fair credit.

And, 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 homebuyer with a fair credit score could pay $700 more every year on the typical home than someone with an excellent score.

In NYC, the median home value is quite a bit higher than the national average at $431,600. Over the lifetime of a mortgage, homebuyers with excellent credit will pay $625,000 for a median priced home, compared to $670,000 for buyers with fair credit — a difference of $45,000.

The difference is even more staggering in some other white-hot housing markets. In San Jose, CA, the difference between buying the median priced home with excellent credit versus fair credit amounts to a whopping $129,000 over the lifetime of a mortgage. The median home value in San Jose is over $1.2 million.

Conversely, buyers with excellent and fair credit scores in Pittsburgh, PA see the smallest difference in mortgage rates. A buyer with a fair credit score would pay about $9,000 more on the median home than someone with excellent credit. The median priced home in Pittsburgh is $137,900.

According to a recent survey conducted by Zillow, a third of buyers said finding an affordable home was “challenging.” It was the most frequently named financing concern during the 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,” writes Zillow.

Click here to read the entire release.

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