How much does a lower credit score really cost you on a mortgage? A gap as small as 60 points, the difference between a 720 and a 780, can cost you thousands of dollars, either as a higher rate or as extra fees at closing. Here's the math, plus why a lower score often pushes you into an FHA loan that costs even more over the life of the loan.

720 vs 780: What the Rate Sheet Actually Shows

I thought about titling this one "FHA loans are keeping you poorer," because there's a point I want to make there too. But first, let me show you what a difference a higher credit score makes on your mortgage.

Scenario:

  • $500k purchase price
  • $400k loan (20% down)
  • Utah, Salt Lake County, first time buyer
  • Income at $130k
  • Priced out 8/25/2026 (rates move daily)

Here's what 780 gets you:

  • 6.625% (6.566% APR): +$500/.125 credit
  • 6.5% (6.489% APR): -$500/.125 cost
  • 6.375% (6.412% APR): -$2,500/.625 cost

Here's what 720 gets you:

  • 6.875% (6.943% APR): +$1,000/.25 credit
  • 6.75% (6.867% APR): -$1,000/.25 cost
  • 6.625% (6.79% APR): -$3,000/.75 cost

For the same scenario you're either getting about .25% higher in rate, or getting charged $3,500 more for the same rate (6.625%).

If you want to see how a rate change actually moves your monthly payment, run your own numbers on my payment and closing cost calculator.

Lower Credit Pushes You Into an FHA Loan

Once you start looking at loan options with a credit score below 720, you'll notice the rate and payment are much more affordable going the FHA route.

FHA loans help accessibility for homeownership, so my goal isn't to poo poo on them. Just show the difference a better credit score can make.

FHA mortgages know they're taking on more risk with a lower credit score buyer. So they charge mortgage insurance twice. Two times. Up front and monthly.

3.5% is the minimum down payment, but from that down payment they charge 1.75% as an up front mortgage insurance premium. They call it UFMIP.

Example: $500k purchase price. $17,500 down payment (3.5%) makes a base loan amount of $482,500. This makes you assume that you have $17,500 of equity in the house.

You don't.

UFMIP takes your $482,500 balance and adds $8,443.75 on top for the UFMIP. Now your balance is $8,443.75 higher than you thought. You just lost $8,443.75 in equity because your score was lower.

Mortgage insurance is .55%, which is higher than the average I see on conventional loans at .35%. And it stays on for the life of the loan. It never drops off.

Conventional vs FHA Head to Head After 30 Years

Here's the head to head match:

Conventional

  • 6.625% rate
  • $500k purchase
  • Minimum down payment (3%)
  • $485k loan
  • .35% mortgage insurance
  • 3% annual home appreciation
  • Mortgage insurance payment applied directly toward principal once you reach 78% equity

FHA

  • 6.375% rate (average rates)
  • $500k purchase
  • Minimum down (3.5%)
  • $490,943 balance (after UFMIP)
  • .55% mortgage insurance for the life of the loan
  • 3% annual appreciation

Results

Conventional reaches 78% LTV at year 5.2. Requests removal of mortgage insurance and applies the mortgage insurance payment ($141.46) toward principal.

  • Pays off mortgage at 27.5 years
  • Total interest: $576,461
  • Total mortgage insurance: $8,629

FHA recalculates mortgage insurance, but it does not get eliminated.

  • Mortgage paid at 30 years
  • Total interest: $611,681 (at the lower interest rate, even)
  • Total mortgage insurance: $53,570

Refinancing an FHA Loan Costs You Again

Refinancing an FHA loan charges you UFMIP again.

It's a streamline refinance. It's an easy process: no appraisal, no income docs, no bank statements. Just sign here, please.

Part of the UFMIP fee can get refunded if the streamline is done, on a pro rated schedule, prior to 3 years. But once 3 years hits, you don't get any of the UFMIP refunded. You pay it again, setting you back another 1.75%.

How to Keep Your Score (and Your Equity) Up

If you are preparing now, keep your credit clean. Set payments to automatic. Pay off your credit cards. Yes, a $0 balance helps your credit. You don't need to spend on interest to get a good score.

If you want to walk through your own numbers before you start shopping, grab a free planning session with me on my planning page.

I hope this helps you see the literal value in keeping your score up.

Sam

The values and figures provided in this article are estimates only. Your actual rate, payment, and costs could be higher. This is not a Loan Estimate, a commitment to lend, or an offer of credit. Get an official Loan Estimate before choosing a loan.

Samuel Thompson, NMLS #1052267, Integrity Lending, Company NMLS #1006977

Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.