YOU and YOUR CREDIT: Home Ownership and Credit1

Joan P. Elmore, Sarah M. Ellis, Michael S. Gutter, and Travis P. Mountain 2

Using credit wisely helps you to achieve many of your goals; in fact, all of us need it to obtain a home as well as other important purchases.

Figure 1. 
Figure 1. 
Credit: Gettyimages

Having a mortgage affects two aspects of your financial management: your net wealth and your cash flow. The home will count as something that you own (asset) and the mortgage as something that is owed (liability).

As you pay down your mortgage, this will improve your net wealth. As your home increases in value, you also will improve your net wealth.

However, the mortgage payment will be a major expense. It is critical to look at your budget prior to taking on a mortgage to gauge exactly how much you can truly afford.

It is important to know your FICO score prior to meeting with lenders (Note your FICO score is your credit score, which is based on your payment history, debt capacity, length of history, number of inquiries, and types of credit being used). It can also be helpful in determining the price of home you can afford since it affects how much you can borrow.

Table 1 helps to illustrate the difference in the monthly mortgage payment for a 10-year home equity loan of $100,000 broken down by FICO score. Thus, a higher score would mean a lower interest rate; hence, you would have a lower payment or could afford to borrow more.

One last issue that often arises with home ownership is the desire to fill every room in the home with furnishings. This tends to be another popular use of credit when purchasing a home. It is critical to avoid this trap. Taking on too much consumer debt too soon can leave you unprepared for the unforeseen expenses that tend to come up when buying a home.

Tables

Table 1. 

Estimated monthly payment on $100,000 mortgage by credit score and corresponding interest rate (assuming a 15-year loan period term).

Credit score

Interest rate1

Monthly payment

760–850

3.468%

$713

700–759

3.69%

$724

680–699

3.867%

$733

660–679

4.081%

$744

640–659

4.511%

$766

620–639

5.057%

$794

1Rates as of February 13, 2019 from myFICO.com

Footnotes

1. This document is FCS7234, one of a series of the Department of Family, Youth and Community Sciences, UF/IFAS Extension. Original publication date September 2008. Revised April 2012, May 2016, and March 2019. Visit the EDIS website at https://edis.ifas.ufl.edu for the currently supported version of this publication.
2. Joan P. Elmore, former Extension agent IV, UF/IFAS Extension Jackson County; Sarah M. Ellis, Extension agent I, UF/IFAS Extension Citrus County; Michael S. Gutter, associate dean and associate professor; and Travis P. Mountain, former lecturer, Department of Family, Youth and Community Sciences; UF/IFAS Extension, Gainesville, FL 32611.