New Credit Score Requirements

Fannie Mae has announced new credit score requirements. There are new rules regarding credit scores that will impact the terms you get on a mortgage. For many years there have been rules that say you pay a higher rate with a lower credit score. Now the rules have gotten even more strict causing costs to rise.

Announcement

Below is an announcement from one lender we work with that will help illustrate:

“In response to the new agency (FNMA/FHLMC) loan level price adjustments, ______ Mortgage Company will be making the following changes to our conventional price grids. Effective with all new interest rate lock-ins on Monday January 3, 2011, the following price adjusters will apply (these are called “add-ons”, and are points that are added on to the interest rate):

Conventional Fixed/ARM Loan Price Adjustments:

Loan-To-Value FICO>=740

70.01 – 75.00% 0.00 (used to be 0.00)
75.01 – 80.00% 0.25 (used to be 0.00)
80.01 – 85.00% 0.25 (used to be 0.00)
85.01 – 90.00% 0.25 (used to be 0.00)
90.01 – 95.00% 0.25 (used to be 0.00)

Loan-To-Value FICO 720 – 739

70.01 – 75.00% 0.25 (used to be 0.00)
75.01 – 80.00% 0.50 (used to be 0.00)
80.01 – 85.00% 0.50 (used to be 0.00)
85.01 – 90.00% 0.50 (used to be 0.00)
90.01 – 95.00% 0.50 (used to be 0.25)

Loan-To-Value FICO 700 – 719

70.01 – 75.00% 0.75 (used to be 0.50)
75.01 – 80.00% 1.00 (used to be 0.50)
80.01 – 85.00% 1.00 (used to be 0.50)
85.01 – 90.00% 1.00 (used to be 0.50)
90.01 – 95.00% 1.00 (used to be 0.75)

Loan-To-Value FICO 680 – 699

70.01 – 75.00% 1.25 (used to be 0.75)
75.01 – 80.00% 1.25 (used to be 0.75)
80.01 – 85.00% 1.50 (used to be 1.00)
85.01 – 90.00% 1.50 (used to be 1.00)
90.01 – 95.00% 1.75 (used to be 1.50)

Example

So as an example, if you had a 718 credit score, and had a 10% down payment (which is a 90% Loan-To-Value), you’d pay an extra 1.00% point on your loan. If the base rate was 5% with 0 points, you’d pay 5% with 1 point. An extra 1.00% in points is $1,000 per $100,000 you borrow. On a $400,000 loan amount that is an extra $4,000!

If you had a 770 credit score (a high score!), and had a 20% down payment (an 80% Loan-To-Value), you’d still pay an extra 0.25% points on your loan. If the base rate was 5% with 0 points, you’d pay 5% with .25 point. An extra .25% in points is $250 per $100,000 you borrow.

You need to have 25% down payment, and over a 740 credit score to avoid any add-ons at all! The moral of the story is that not only are loans continuing to get harder to get due to tightening guidelines, they are also getting more expensive.