Carolinas Real Estate Talk: Home Mortgages and Credit Scores
In October and November, Fannie Mae and Freddie Mac will roll out new pricing on the home loans they fund. Every borrower will face higher baseline "adverse market" fees (increasing from a 1/4 of 1% to 1/2 of 1%) regardless of the borrower's individual risk factors. Fannie and Freddie will also institute a new risk-based pricing scenario based on the borrower's credit score and downpayment. Some borrowers will be winners with lower fees, but others will be losers. The credit score for obtaining the best rates has now been ratcheted upward from a 700 score to 720. Bottomline, your credit score has never been more important to the home-buying process.
Where should you begin if you are considering a home purchase or a refinance? You need to start by obtaining your credit scores. Scores is plural because your credit score will be different at each of the major credit bureaus. These bureaus are required to give you a free copy of your report once a year, but they only give you the raw information, not the actual score. A great place to find your scores from the three major credit bureaus is to go to www.MyFico.com. The is the Fair Isaac Company website. Fair Isaac developed the scoring model, that is used to create credit scores. For a cost of approximately $50, MyFico.com will give you the scores and the raw data. It will also tell you the reasons for your score.
I ordered my credit scores from MyFico.com and found the site exceptionally informational. I received my credit score from Transunion, Equifax, and Experian and the factors used to create each score were explained. The FICO score ingredients shown and rated include payment history, amount of debt, length of credit history and amount of new credit.
Lenders categorize credit scores in ranges to identify the type and cost of mortgages that they will offer to a borrower. Today's ranges are as follows:
850-720 Prime (excellent credit)
719-620 Alt-A (good credit)
620-540 Subprime (fair credit)
500 and below Hard Money (poor credit)
If your credit scores need improvement, you can also get advice at MyFico.com for repairing your credit. There is a great forum on the site that enables people to ask questions about their specific situations.
Want to know more about buying a home in the Carolinas? Visit the Buyer Services page at www.CarolinaSmallTownLiving.com.