Mortgage borrowers with good credit may face higher costs under a new scheme from federal mortgage associations Fannie Mae and Freddie Mac.The firms have released a new Loan–Level Price Adjustment (LLPA) Matrix for loans sold to them after May 1, 2023. Under the new matrix, borrowers with high credit scores will face higher mortgage fees than before and those with lower credit scores will face lower fees.
"It's unprecedented," David Stevens, a former federal housingcommissioner and former CEO of the Mortgage Bankers Association, told the New York Post. "My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move."
The fee increase is unlikely to lead to significantly higher monthly mortgage payments for most borrowers. For instance, someone with a $400,000 loan and a 6 percent mortgage rate may wind up paying about $40 more per month, according to Stevens' calculations.
But an extra $40 per month means an extra $480 per year. And over the whole course of mortgage repayment, a homeowner could wind up paying thousands of dollars more due to the fee shift.
Regardless of what the shift means in terms of actual costs, it seems unfair that borrowers with extremely good credit are effectively being penalized while borrowers with lower credit scores are being rewarded.
"This was a blatant and significant cut of fees for their highest-risk borrowers and a clear increase in much better credit quality buyers – which just clarified to the world that this move was a pretty significant cross-subsidy pricing change," Stevens said.
"Overall, lower-credit buyers will still pay more in LLPA fees than high-credit buyers – but the latest changes will close the gap," notes the Post:
Under the new rules, high-credit buyers with scores ranging from 680 to above 780 will see a spike in their mortgage costs – with applicants who place 15% to 20% down payment experiencing the biggest increase in fees….
LLPAs are upfront fees based on factors such as a borrower's credit score and the size of their down payment. The fees are typically converted into percentage points that alter the buyer's mortgage rate.
Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%….
Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket.
Mortgage News Daily explained it this way in January when the changes were announced:
The effective penalty for having a credit score under 680 is now smaller than it was. It still costs more to have a lower score. For instance, if you have a score of 659 and are borrowing 75% of the home's value, you'll pay a fee equal to 1.5% of the loan balance whereas you'd pay no fee if you had a 780+ credit score. But before these changes, you would have paid a whopping 2.75% fee. On a hypothetical $300k loan, that's a difference of $3750 in closing costs.
Elsewhere in the spectrum, things got worse. Borrowers with higher credit scores will generally be paying a bit more than they were under the previous structure.…This doesn't necessarily come out of your pocket upfront as lenders can offer higher interest rates in some cases and pay these costs for you (but the costs are still there, and still technically being paid by you over time in the form of higher interest rates).
Federal Housing Finance Agency Director Sandra L. Thompson called it "another step to ensure that [Fannie Mae and Freddie Mac] advance their mission of facilitating equitable and sustainable access to homeownership."
FREE MINDS
Buzzfeed News is shutting down. Former Editor in Chief Ben Smith (now editor in chief of Semafor) explores what went wrong—a story that mirrors larger shifts in the internet-media ecosystem and the evolution of social media platforms and public opinion about them.
"The end of BuzzFeed News also signals a vast shift in digital media that those of us who live inside it are feeling intensely right now, the end of one era and the beginning of another," wrote Smith:
[Buzzfeed co-founder Jonah] Peretti had built BuzzFeed into a traffic juggernaut by being among the first to see the rising social web. But BuzzFeed never found a new path when that trend turned against us — when consumers found their Facebook feeds toxic, not delightful; when platforms decided news was poison; and when Facebook, Twitter, and the rest simply stopped distributing links to websites.
Peretti created BuzzFeed in 2006 while he was working at Huffington Post, as it was then called, which he co-founded. In 2020, BuzzFeed — shaky but still apparently ascendant —acquired HuffPost off the hands of its latest owner, Verizon. (As I recall, they basically paid BuzzFeed to take it off their hands.)
But as the social tide receded, HuffPost's giant, old-fashioned front-page, has remained surprisingly vital. In its first iteration as a liberal answer to the Drudge Report, it had hooked a generation of baby boomers in the mid-aughts with a mix of giddy coverage of Barack Obama and salacious celebrity gossip. Drudge and Huffington Post, the old portals that propped up the internet of the mid-aughts, will outlive the social media age, along with, of all things, Yahoo!.
FREE MARKETS
A new report from the R Street Institute shows alcohol delivery is not correlated to higher rates of alcohol consumption. The report is based on recent data from the National Institute on Alcohol Abuse and Alcoholism (NIAAA) Surveillance Report, which R Street compared to state alcohol delivery rules.
"News stories during the pandemic suggested that liberalizing alcohol delivery laws was causing Americans to drink more," notes C. Jarrett Dieterle, a resident senior fellow at the R Street Institute and the author of Give Me Liberty and Give Me a Drink!
As one Washington Post headline from December 2021 put it: "States rushed to loosen alcohol laws in the pandemic. Heavy drinking went up, some studies say."
The problem is that these "studies" said no such thing. It was clear that more states were allowing alcohol delivery. And there was also evidence showing that Americans were drinking more during COVID-19. But there were no studies showing a connection between these two things. In fact, numerous researchers suggested that "social stressors" like loneliness and greater demands during the pandemic were the likeliest causes of increased consumption.
More here.
QUICK HITS
More good news out of TN today: the legislature unanimously passed a bill requiring TDOC to equip people leaving prison with a state ID, certified copy of their birth certificate & social security card. Thank you @RepAndrewFarmer & Sen. @ToddGardenhire! pic.twitter.com/7YpdVRKO3E
— Lauren Krisai (@laurenkrisai) April 21, 2023
• Starship, the uncrewed rocket launched by SpaceX yesterday, exploded midair.
• Stacey Plaskett, a Democratic delegate to Congress from the U.S. Virgin Islands, is accusing writer Matt Taibbi of perjury. "The congresswoman's basis for accusing Taibbi of perjury is a handful of errors that he made during the publication of the Twitter Files," notes Reason's Robby Soave. But while "it is true that Taibbi made some errors…it is obviously not the case that Taibbi committed perjury."
• PEN America's latest banned books report is out. "During the first half of the 2022-23 school year PEN America's Index of School Book Bans lists 1,477 instances of individual books banned, affecting 874 unique titles," the organization says.
• From The Free Press: "Having a baby made me even more pro-choice."
• A bill in Alabama (H.B. 229) "would create a review process for the possible resentencing or release" of incarcerated people age 50 and up who have already served at least 15 years in prison and were not in for "a crime that involved serious physical injury to a victim," notes the Alabama Political Reporter.
• "The populist right stumbles into boilerplate progressivism — again," laments Noah Rothman at National Review.
• Utah is making it easier for out-of-state and foreign workers to get licensed to work in the state.
• "Kansas' governor vetoed legislation Wednesday that would require clinics to tell patients that a medication abortion can be stopped using an unproven drug regimen," reports the Associated Press.
FAQs
Does my credit score affect my closing cost? ›
Your credit score has a direct impact on the cost of your home loan. Knowing how this works can save you thousands of dollars in closing costs, and much more over the life of the loan by avoiding a higher interest rate.
Do you get penalized for having a good credit score? ›The effective penalty for having a credit score under 680 is now smaller than it was. It still costs more to have a lower score. For instance, if you have a score of 659 and are borrowing 75% of the home's value, you'll pay a fee equal to 1.5% of the loan balance whereas you'd pay no fee if you had a 780+ credit score.
Do hard inquiries affect getting a mortgage? ›Your credit score might take an initial hit when you apply for a mortgage because the lender will have to open up a hard inquiry into your credit report. A hard inquiry (a.k.a., a “hard pull”) is when a lender pulls your credit report from one of the three main credit bureaus (Experian, Equifax or TransUnion).
Will a low credit score cause a borrower to pay higher interest rates? ›Higher mortgage rates
Even if you are able to secure a mortgage with a lower credit score, you'll likely have significantly higher interest rates on your loan (about 7.5 percent with a score of 620 or lower, compared to 5.8 percent with a score of above 760).
Then once you actually take out the home loan, your score can potentially dip by 15 points and up to as much as 40 points depending on your current credit. This decrease probably won't show up immediately, but you'll see it reported within 1 or 2 months of your closing, when your lender reports your first payment.
Do they check credit score before closing? ›The answer is yes. Lenders pull borrowers' credit at the beginning of the approval process, and then again just prior to closing.
Why is 850 credit score bad? ›An 850 FICO® Score is nearly perfect. You still may be able to improve it a bit, but while it may be possible to achieve a higher numeric score, lenders are unlikely to see much difference between your score and those that are closer to 850.
What happens at 850 credit score? ›People with an 850 credit score tend to have less debt in other categories, Experian's report reveals. For example, they typically have an auto loan balance of about $17,000 compared to the national average of nearly $21,000. Perfect scorers also carry below-average balances on auto loans and mortgages.
Is A 760 credit score good? ›Your score falls within the range of scores, from 740 to 799, that is considered Very Good. A 760 FICO® Score is above the average credit score. Consumers in this range may qualify for better interest rates from lenders. 25% of all consumers have FICO® Scores in the Very Good range.
How many inquiries is too many for a mortgage? ›There's no such thing as “too many” hard credit inquiries, but multiple applications for new credit accounts within a short time frame could point to a risky borrower. Rate shopping for a particular loan, however, may be treated as a single inquiry and have minimal impact on your creditworthiness.
Which FICO score do mortgage lenders use? ›
While most lenders use the FICO Score 8, mortgage lenders use the following scores: Experian: FICO Score 2, or Fair Isaac Risk Model v2. Equifax: FICO Score 5, or Equifax Beacon 5. TransUnion: FICO Score 4, or TransUnion FICO Risk Score 04.
How many inquiries is bad for mortgage? ›For many lenders, six inquiries are too many to be approved for a loan or bank card. Even if you have multiple hard inquiries on your report in a short period, you may not see negative consequences if you're shopping for a specific type of loan.
How does a high credit score affect your loan interest rate? ›A higher score increases a lender's confidence that you will make payments on time and may help you qualify for lower mortgage interest rates and fees.
What is the correlation between a high credit score and loan interest rates? ›As such, credit scores directly influence what mortgage rate a lender offers you. Higher credit scores will usually mean a lower interest rate (and a lower monthly payment), while lower scores will usually receive higher rates.
How does higher credit score affect interest rates? ›FAQs On Effect of CIBIL Score on Loan Interest Rates
It is simple, a high credit score will get you a lower rate of lending interest, while a low credit score will get you a higher rate of lending interest.
This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio. Additionally, if the account you closed was your oldest line of credit, it could negatively impact the length of your credit history and cause a drop in your scores.
Why did my credit score drop 40 points after paying off debt? ›The most common reasons credit scores drop after paying off debt are a decrease in the average age of your accounts, a change in the types of credit you have and an increase in your overall utilization.
Why is my credit score lower when a mortgage company pulls? ›Lenders use a different credit scoring model
Mortgage lenders, on the other hand, pull FICO scores from the three main credit bureaus — Equifax, TransUnion, and Experian — and use the mid score. Mortgage lenders use a tougher credit scoring model because they need to be extra sure borrowers can pay back large debts.
Credit is pulled at least once at the beginning of the approval process, and then again just prior to closing. Sometimes it's pulled in the middle if necessary, so it's important that you be conscious of your credit and the things that may impact your scores and approvability throughout the entire process.
How often do lenders check credit before closing? ›But do they run a second credit check before closing?” Here's the short answer: Most lenders who offer FHA loans will check your credit score at least twice. They do an initial pull shortly after you apply for financing, and they often do a second pull just before the scheduled closing day.
How far back do mortgage lenders look at credit history? ›
There are many factors that lenders consider when looking at your credit history, and each one is different. The typical timeframe is the last six years.
How rare is 900 credit score? ›Only about 1% of people have a credit score of 850. A 900 credit score can be thought of as fairly unrealistic.
Has anyone gotten a 850 credit score? ›Only about 1.6% of the 232 million U.S. consumers with a credit score have a perfect 850, according to FICO's most recent statistics.
Is 800 credit score rare? ›According to a report by FICO, only 23% of the scorable population has a credit score of 800 or above.
Is A 900 credit score good? ›Although ranges vary depending on the credit scoring model, generally credit scores from 580 to 669 are considered fair; 670 to 739 are considered good; 740 to 799 are considered very good; and 800 and up are considered excellent.
What percentage of people have a credit score over 825? ›21% of all consumers have FICO® Scores in the Exceptional range.
What is the benefit of 900 credit score? ›A credit score ranging from 750 to 900 is considered an excellent credit score. Banks, NBFCs and other online lenders prefer candidates who have a credit score in this range. If your credit score is in this range, you will be eligible for most credit products.
What is a 900 credit score considered? ›For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2022, the average FICO® Score☉ in the U.S. reached 714.
How much is 900 credit score? ›| Poor | Excellent | |
|---|---|---|
| FICO® 8 industry-specific scores | 250 to 579 | 800 to 900 |
The newest versions of FICO's credit scores that go up to 900 are FICO Auto Score 9 and FICO Bankcard Score 9. As for VantageScore, versions 1.0 and 2.0 – and their 501-990 range – have been retired. The newest models – VantageScore 3.0 and 4.0 – use the standard 300-850 range.
What is the average US credit score? ›
Credit scores help lenders decide whether to grant you credit. The average credit score in the United States is 698, based on VantageScore® data from February 2021. It's a myth that you only have one credit score.
How long do I have to shop for a mortgage without hurting your credit? ›When it comes to mortgages, however, lenders expect you to shop around and you can do so as much as you need to within 45 days of getting your first hard inquiry without harming your credit score further.
How many hard pulls is too many? ›So, applying for credit sparingly can minimize credit damage. In general, having six or more hard inquiries is seen as too many. Having this many hard inquiries can significantly impact your score and make lenders more likely to deny you, even if your score is otherwise sufficient.
Which credit score matters more TransUnion or Equifax? ›No credit score from any one of the credit bureaus is more valuable or more accurate than another. It's possible that a lender may gravitate toward one score over another, but that doesn't necessarily mean that score is better.
What does FICO score 8 mean? ›FICO 8 scores range between 300 and 850. A FICO score of at least 700 is considered a good score. There are also industry-specific versions of credit scores that businesses use. For example, the FICO Bankcard Score 8 is the most widely used score when you apply for a new credit card or a credit-limit increase.
Where is the most accurate FICO score? ›Simply put, there is no “more accurate” score when it comes down to receiving your score from the major credit bureaus.
Do multiple hard inquiries count as one mortgage? ›If you're shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it's typically from 14 to 45 days.
How to get 800 credit score in 45 days? ›- Check your credit report. ...
- Pay your bills on time. ...
- Pay off any collections. ...
- Get caught up on past-due bills. ...
- Keep balances low on your credit cards. ...
- Pay off debt rather than continually transferring it.
- Obtain free copies of your credit report. ...
- Flag any inaccurate hard inquiries. ...
- Contact the original lender. ...
- Start an official dispute. ...
- Include all essential information. ...
- Submit your dispute. ...
- Wait for a verdict.
The higher your score, the lower the interest rate you will usually get – and when you're talking about a loan that is hundreds of thousands, if not millions, of dollars, a percentage or two makes a big difference.
What interest rate can I get with a 760 credit score? ›
| FICO Score | APR* | Monthly Payment |
|---|---|---|
| 760-850 | 5.868% | $1,773 |
| 700-759 | 6.090% | $1,816 |
| 680-699 | 6.267% | $1,850 |
| 660-679 | 6.481% | $1,892 |
If you increase your credit score by 1 single point to 680, you save thousands of dollars in closing costs, which will translate into anywhere from . 125% to . 25% improvement in your interest rate.
What mortgage rate can I get with a 780 credit score? ›...
Average mortgage interest rate by credit score.
| FICO Score | National average mortgage APR |
|---|---|
| 660 to 679 | 6.806% |
| 680 to 699 | 6.592% |
| 700 to 759 | 6.415% |
| 760 to 850 | 6.193% |
It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly payments.
What credit score gets you the best mortgage rate? ›Generally speaking, borrowers with credit scores of 760 or higher get charged the lowest interest rates. On conventional conforming loans, which must adhere to Fannie Mae and Freddie Mac guidelines, a 780 may qualify you for a slightly lower rate—though it depends on your down payment amount.
What is the interest rate on a mortgage with 725 credit score? ›700 to 759: APR of 5.354% with a monthly payment of $1,117. The total interest paid on the mortgage would be $202,237. 680 to 699: APR of 5.531% with a monthly payment of $1,139.
Can I buy a house with a 790 credit score? ›790 credit score mortgage loan options
Experts say you need a minimum credit score of 620 to be approved for a conventional mortgage loan. As a result, a credit score of 790 should make a mortgage approval highly likely.
Closing a bank account typically won't hurt your credit. Your credit score is based on how you manage borrowed money, and your checking or savings accounts aren't debts. So bank account closures aren't reported to the three major credit bureaus: Experian, TransUnion and Equifax.
What happens if you open a credit card before closing on a house? ›A new credit card application before you close on a home could affect your mortgage application. A mortgage lender will usually re-pull your credit before closing to ensure you still qualify and that new credit was not opened.
Can you buy a house with a 580 credit score? ›Most lenders offer FHA loans starting at a 580 credit score. If your score is 580 or higher, you can put only 3.5% down. Those with lower credit scores (500-579) may still qualify for an FHA loan. But they'd need to put at least 10% down and it's more difficult to find a willing lender.
How can I improve my credit score before closing? ›
- Continue making monthly debt payments on-time. Paying your bills on time is the most important thing you can do to help raise your score. ...
- Don't open too many new lines of credit at the same time. ...
- Keep your credit utilization rate low. ...
- Dispute any credit report errors.
Similarly, if you pay off a credit card debt and close the account entirely, your scores could drop. This is because your total available credit is lowered when you close a line of credit, which could result in a higher credit utilization ratio.
Why did my credit score go down after closing an account? ›You closed your credit card. Closing a credit card account, especially your oldest one, hurts your credit score because it lowers the overall credit limit available to you (remember you want a high limit) and it brings down the overall average age of your accounts.
Why does closing an account drop your credit score? ›For starters, when you close a credit card account, you lose the available credit limit on that account. This makes your credit utilization ratio, or the percentage of your available credit you're using, jump up—and that's a sign of risk to lenders because it shows you're using a higher amount of your available credit.
What should you not do during underwriting? ›Tip #1: Don't Apply For Any New Credit Lines During Underwriting. Any major financial changes and spending can cause problems during the underwriting process. New lines of credit or loans could interrupt this process. Also, avoid making any purchases that could decrease your assets.
Can mortgage be denied after closing? ›Can a mortgage be denied after the closing disclosure is issued? Yes. Many lenders use third-party “loan audit” companies to validate your income, debt and assets again before you sign closing papers. If they discover major changes to your credit, income or cash to close, your loan could be denied.
What credit score is needed to buy a 300k house? ›Generally speaking, you'll need a credit score of at least 620 in order to secure a loan to buy a house. That's the minimum credit score requirement most lenders have for a conventional loan. With that said, it's still possible to get a loan with a lower credit score, including a score in the 500s.
What mortgage rate can I get with a 740 credit score? ›| FICO Score | National average mortgage APR |
|---|---|
| 660 to 679 | 6.806% |
| 680 to 699 | 6.592% |
| 700 to 759 | 6.415% |
| 760 to 850 | 6.193% |
| Initial Score | Avg. time to reach 700* | Avg. time to reach 750* |
|---|---|---|
| 350 - 400 | 2+ years | 2-3 years |
| 450 - 500 | 18 months - 2 years | 2 - 3 years |
| 550 - 600 | 12-18 months | 1-2 years |
| 650 - 700 | – | 3 months - 1 year |
- Make sure your credit report is accurate.
- Sign up for Credit Karma.
- Pay bills on time.
- Use credit cards responsibly.
- Pay down a credit card or loan.
- Increase your credit limit on current cards.
- Make payments two times a month.
- Consolidate your debt.