Report: Today You Need EXCELLENT Not Good Credit!
Last year Fannie Mae and Freddie Mac introduced new Loan Level Pricing Adjustments, which increase the borrowing costs for higher risk borrowers. Some areas that Fannie and Freddie consider higher risk are borrowers with fico scores less than 740, loan to values greater than 70% or combined loan to values (1st and 2nd mortgages combined) over 80% and of course Non-Owner Occupied mortgages.
As of April 1st 2011 Fannie will be increasing these loan level price adjustments for borrowers that fall into these higher risk loans. However as most of you know, our clients don’t borrow directly from Fannie Mae or Freddie Mac, they borrower from Citywide Home Loans, Wells Fargo, Bank of America, etc. These banks have started charging these loan level price adjustments this month, because they know it might take several months for Fannie or Freddie to purchase these loans and they don’t want to be shorted when they sell the loans.
Bottom line: If you or your clients have less than a 740 fico score or are going to be financing with a 1st and 2nd mortgage, you’re going to be paying more! Take a look at the top chart below; if you have a 699 fico score and you are putting down 20% to avoid mortgage insurance, there is still a 1.75% fee (discount point).
On a $250k loan, they are either going to pay $4,375 (1.75%) as a discount fee or they could increase the interest rate from today’s par rate of 4.625% and add approximately .625% for a final rate of 5.25%. The latter would result in $1,562.50 additional interest every year and a monthly increase in payments of $130.20.
WHAT’S THE TAKE AWAY? Clients with less than 740 fico scores are going to pay more for loans and qualify for less. It’s not enough to have good credit anymore; clients need EXCELLENT credit in order to qualify for the best interest rates.
If your clients don’t know what their scores are or think they might be under 740, I’d be happy to meet with them and coach them on how to maximize their scores before they close on their new home loan. I would even offer a free 90 day Credit Coaching Program, which on average growing client’s credit scores by 40 points.
Josh Mettle is a top producing mortgage lender specializing in financing Physicians, Dentists and Medical Professionals in Salt Lake City, Utah. Check out his site http://www.utahphysicianhomeloans.com/ for medical professionals. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. If you're ready to buy or sell residential real estate, get Josh's latest free tips, tools and newsletter at http://www.joshmettle.com. Utah Real Estate Professionals can keep informed by visiting Josh's Mortgage and Real Estate Blog at http://www.joshmettle.com/blog/
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