Credit scores are the best predictor of how a homeowner will pay on a mortgage, so it’s no surprise that credit scores will play a bigger role in mortgage financing in 2008.

Actually “that date” is more clearly defined.  It’s March 1, 2008.

For loans closing on or after March 1, 2008, Fannie Mae and Freddie Mac will subject the bulk of their mortgage products hefty fees when the loan-to-value exceeds 70%.

Credit scores will determine the amount of the rate adjustment.

  • Credit scores between 660-679: 0.750% of loan size in fees
  • Credit scores between 640-659: 1.250% of loan size in fees
  • Credit scores between 620-639: 1.750% of loan size in fees
  • Credit scores below 620: 2.000% of loan size in fees

For example, a person with a $250,000 mortgage rate would face a “credit-based fee” of $3,125 just because they carry a 650 credit score.  It would jump to $4,375 for a 635 credit score.

Alternatively, this fee can be “financed” into the mortgage instead of paid as cash.  The general rule is that for every 1.000% in fees, you can exchange it for a 0.250% increase to rate.  This is just a guideline, of course — every mortgage lender has its own pricing scheme.

Because the credit score adjustment is not into effect for loans closing prior to March 1, 2008, there is plenty of time to be proactive if you think you’ll trigger the new rule.

If you are planning to purchase a home on or after March 1, 2008, it would be prudent to have your credit scores checked as soon as possible.  If your scores are below 680, or teetering on the edge, take ownership of your credit and start working to improve your score.

A terrific source of non-biased credit scoring information is myFICO.com.

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