Ron's Blog Conroe/Woodlands/Lake Conroe

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Mortgage Fees & Credit Scores

I was just reading a bulletin from Freddie Mac dated July 8, 2008 that described their new fee structure as it concerns conventional loans. This does not affect FHA/VA and certain other type special loans. For those of you who don’t know who Freddie Mac or Fannie Mae is they are the entities that buy a whole lot of mortgages on the secondary market.  What Freddie says goes. I think most loan officers will agree with that statement. In fact Fannie said today they are going along with the fee increases. Anyway these fees are based on a matrix that involves both loan-to-value and CREDIT SCORES. When the original buyers (that’s you) credit score is lower and the down payment is lower the fees go up. In some cases they go way up. In addition there is a sort of punishment factor as I will call it built in to the matrix. This punishment factor will increase fees for those who put down just 20% and avoid mortgage insurance.  You may save on your mortgage insurance but because of what happened in the past there is this punishment factor and your fees will increase until your down payment hits about 30%.

From what I was told by my friendly loan officer these increased fees may be passed along in the form of higher interest rates rather than fees paid at closing. But either way it is more money out of your pocket. You may ask at what point the fees become reasonable. In looking at the matrix and realizing that most of us ordinary people do not have gobs of cash laying around for a HUGE down payment the best deal is between 5% to 10% down and a credit score of 720+. PLEASE remember that you need to consult a licensed and well informed loan officer to explain this to you as each situation will be different. There are consequences involving interest rates, origination fees etc that only they can truly explain to you.
My point in telling you about these increased fees is that your CREDIT SCORE matters now MORE THAN EVER! I firmly believe that in looking at these new numbers and these increased fees that will probably result in higher interest rates that if you have a credit score of less than 660 you are better off paying for credit restoration/improvement than paying the fees. Thirty years with an interest rate .25% higher can be a big amount of money.
Is this still a good time to buy a home? Yes it is. It is a great time to do just that. Can you still get a loan with credit scores less than 660? Yes you can. Can you get a loan with a credit score of 620? Probably. But I ask you…what will the cost be versus improving your credit for as little as $995 and receiving a whole lot of other benefits besides credit improvement. If you have any question please shoot me an email or comment. I will direct you to some good resources on credit improvement. And remember please consult with a licensed and informed mortgage officer for a full appraisal of your situation.

 Freddie Mac Guidelines

0 comments • Ron Wickes • August 13 2008 05:33PM

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