The Cost of Credit: How Much Is Your Score Costing You?
Do you know the cost of credit and how much your score is costing you?
Well, it could be adding 10+ years of extra payments to your life.
Yep, you heard that right. Ten or more years worth of payments! That could be as much as $500,000 you don’t need to pay, and all because you don’t have an ideal credit score.
That’s why today we’re going to dive into the impact your credit score has on your real estate deals…and your wallet.
If you don’t fit into a standard loan’s very strict (and small) box, then it can cost you dearly.
So, why does this happen?
Because there are many kinds of loans, but the ones with the best rates and terms are Conventional (aka, “standard”). If you can’t qualify for these affordable loans, then your costs jump considerably when you move to Non-QM (aka, “non-standard) loans.
Right now, in this market, the difference between a standard and a non-standard loan is 2 to 3 points.
That’s thousands of dollars.
In the video above, we compare two investors who have different loans with different rates. Even though they both paid the same amount for a property, the outcome of what they pay might surprise you…especially when they start buying multiple properties.
Investor 1 pays a lower rate than Investor 2.
So, let’s breakdown their payments based on a loan amount of $200,000…
Every month, Investor 1 pays $954.83 for their property. Meanwhile, Investor 2 pays $1,264.14. That’s about $310 more than Investor 1 per month.
Now, let’s take that another step further:
Both investors eventually purchase 5 properties to add to their real estate portfolio. The difference in their total payments is about $1,500 per month (yikes).
If we take that number and look at what happens every year, Investor 2 will pay about $18,500 more than Investor 1. All because their credit score was too low to get a loan with affordable rates.
And here’s where you can see the biggest impact: Over the life of the loan (about 30 years), Investor 2 will pay over half a million dollars more than Investor 1.
Now you can see why your credit score matters.