In response to the rising delinquency rates and the losses they cause to lenders, Fannie Mae announced yesterday that there will be new pricing adjustments for borrowers with a 679 or lower credit score, and for loans where the total loan to value is over 90%.
What does this mean to borrowers? The current underwriting system allow borrowers who are overall very strong (good income, plenty of assets, good equity in the house) but who have less than perfect credit to obtain the best rates
available. Under the new structure, credit scores will have a direct impact on rate, and only borrowers with a 680 or better middle credit score will qualify for the best rates.
For the last year I've been talking about how credit is becoming more and more important. Now Fannie Mae has put it in black and white and it will start impacting borrowers in January for mortgages closing starting March 1, 2008.
On top of the increased importance of credit scores, there are pricing changes in the works for transactions where there is subordinate financing, for example a second mortgage or home equity line of credit. For the last few years there have been great mortgage products available which allow borrowers to get the best possible rate on an 80% first mortgage regardless of whether or not there is a second mortgage behind it, even up to 95% total loan to value. While the guidelines are a bit too complex to summarize here, the gist of it is that for most borrowers, if the down payment is less than 10%, there may be a slight increase in rate for the first mortgage.
In spite of all the doom and gloom in the headlines lately it is still a good time to buy a home. It will still be after the new guidelines go into place, but credit and down payment are becoming more and more important.
As always, feel free to call or e-mail with questions--or even leave a comment here on my blog!
