When you go to buy a home, one of the first things you do is make sure you have the credit to get a decent rate on a mortgage. Typically, the higher the credit rating the better the mortgage rate, which means you pay less.
However, a recent change by federal mortgage regulators Fannie Mae and Freddie Mac, is throwing a monkey wrench into the home buying process for people who have excellent credit.
Put as simply as possible, the rules rework the brackets of credit that people fall under when buying a home. Typically, those with a credit score of 740 or higher are in one bracket having excellent credit. But the new rules are splitting up even more brackets for different when it comes to the fees you pay to get a mortgage.
The rate you pay for these initiation fees is higher for people in higher credit brackets, and lower for people in lower brackets who don’t have as good of credit.
In a nutshell, you are now paying more to get a mortgage at the outset if you have a credit score in the 700s than a person with a credit score in the 600s.
“These rule changes started when loans started to be locked back at the end of March, so we’ve already been dealing with the changes that are there,” said Brad Niccum, a mortgage expert with the Nest Mortgage Group in Greenwood.
“The advantages of the higher credit score have kind of come down a little bit, and the advantages of a lower credit score have come up,” he added.”
The numbers, according to the Federal Housing Finance Agency (FHFA), show that lower credit score rates would be an average savings of over $2,000. While those with higher credit scores may pay an extra $1,000.
Niccum explains though that overall, borrowers with excellent credit are still paying less on a mortgage than someone with fair credit, so it is still an advantage to have the best possible credit score possible when starting the process of buying a home.