Don’t Underestimate How Much Your Credit Scores Can Cost You When Looking For a Mortgage
When was the last time you checked your credit reports and found out what your current FICO scores are? And I don’t mean the last time you ordered your credit scores from annualcreditreport.com or any other “consumer” credit score version company. Keep in mind the credit scores these companies sell to you are NOT your true FICO scores that mortgage lenders use to determine if you qualify and most important, what “pricing” tier do you fit into.
The only website that did sell all three FICO scores was MyFico.com. Remember I said “did”. Experian just recently pulled out of myfico.com so you can only order your real FICO scores from Equifax and Transunion.
So what does that mean to the everyday consumer? The only way to find out your 3 FICO scores is to have a mortgage lender pull your scores. Why do you want to know your FICO scores as early as possible? Because for one, you “NEED” to know what pricing tier you currently are in when it comes to getting accurate mortgage rate pricing.
Did you know Fannie Mae and Freddie Mac will hit you with a pricing adjustment is your score falls BELOW 740? Just falling short of that 740 by ONE point can cost you depending on the loan to value. Most people looking to purchase a home or refinance wait until they are ready to apply for their mortgage before checking their credit scores.. Most often times if there is something on their credit reports that they are unaware of, like a $50 collection from a past phone bill ( which can lower your score by as much as 40-50 points), they will not have enough time to get it straightened out before they close on their loan, causing them to pay more in rate and fees.
Now of course too many mortgage companies pulling your credit reports will add to the inquiries and also could lower your credit scores. So I suggest having ONE mortgage lender pull your credit scores early on in the mortgage shopping process to find out what your 3 FICO scores are. You can then use the middle score to compare other lenders. You just inform the other lenders that you just had your credit scores pulled and they will be able to quote you pricing based on that middle score you already have.
Another advantage of checking your credit scores early is if there is a mistake(s) on your reports, you will have enough time to have them resolved and have your credit scores checked again right before applying which could put you in the next “pricing tier” which could save you on your interest rate and costs.
Here is how Fannie Mae and Freddie Mac breakdown their credit score pricing tiers:
- 740+ credit score (best pricing and rates)
- 700-719
- 680-699
- 660-679
- 640-659
- 620-639
Below 620 (cannot even get a conventional loan )
For example: If you are looking to purchase a home and you are putting down 20% and you have your credit scores pulled and your middle score is 679. Guess what, Fannie and Freddie are going to hit you with a 2.50% pricing adjustment. WOW! What that means to you is if someone had a 740 score, they could get a 30 year fixed rate at 4.875% NO POINTS. But because your score is 679, that same 4.875% will cost you 2.5 POINTS. If you were applying for a $300,000 loan, having a 679 credit score would cost you $7500.
Most consumers are not aware of these pricing tiers until they apply for a mortgage. Every lender will impose these pricing adjustments unless you go with FHA financing. But even with 20% down, you have to pay monthly mortgage insurance AND pay a one time 1.75% upfront mortgage insurance premium with FHA too.
So give yourself plenty of time, check your credit scores as early as possible (not on your own) and hopefully you have enough time to raise your scores before you actually apply for your mortgage if you fall into any of these lower pricing tiers.
Some mortgage companies can actually help you raise your scores during the process as well. Always ask if they offer such services. You will be glad you did!
Tags: credit and mortgage, credit reporting, credits cores, fico, New Jersey Mortgage
