According to the Chicago Tribune if you have a credit score that used to considered OK you are in for a nasty surprise when applying for a mortgage after March 1, 2008. Fannie Mae and Freddy Mac (two corporations stated by the government to buy mortgages and create a market for them) will impose fees up to 2 percent on mortgages where the borrower has FICO score of less than 680 (620 used to be the cutoff for a decent score) and a down payment of less than 30%. Here are the details:
|
FICO Score |
% Fee |
Cost Per $100,000 of Loan Value |
|
<620 |
2% |
$2000 |
|
620-639 |
1.75% |
$1750 |
|
640-659 |
1.25% |
$1250 |
|
660-679 |
.75% |
$750 |
So what does that mean for you if you are planning to apply for a mortgage in 2008?
- Check your FICO scores. You can purchase your score from all three credit bureaus for about $48 at www.myfico.com
- Correct any errors in your credit reports by contacting the credit bureaus. Also don’t close old accounts where you have a zero balance. This will lower your credit score.
- Do not take out any new consumer loans (including new credit cards) if you are planning to apply for a mortgage in the next few months. If you are planning to buy a car with a loan wait until after your close on your mortgage.
- Check your credit score again before you apply for a mortgage. It may take a few months for your credit score to improve.
- Save more for a down payment. This may mean delaying your purchase or cutting back on your spending. Although not fun, you will be much less likely to buy a home you really can’t afford. In the last year I have spoken with many people who appear to well off but had bought more house than they could really afford. With the housing slowdown and readjustments in their ARMs they are in for some serious financial pain.