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One Extra FICO Point Can Save You Thousands of Dollars
Having a good FICO score (above 740) can save you thousands of dollars in
mortgage fees.
Fannie Mae has a
Loan-Level Price Adjustment (LLPA) Matrix. This chart shows you the
extra that is charged depending on your credit score and how much you put down.
For example, take a look at the figures that I circled in red. You are
charged a full extra point in fees if you have a credit score of 679
vs. 680 for a loan where you put 20% down.
On a $300,000 mortgage, that would be an additional $3000 in upfront fees that
would be required. If you didn't want to pay it upfront, you could roll it
into the interest rate which would increase
your rate by about 0.25% . Every point is equivalent to roughly a
1/4 % increase in your mortgage rate. So
in this example, a instead of a rate of 4.0%, you would get a rate of 4.25%.
myFICO.com has a calculator that estimates the different pricing for different
credit scores.
This is why it's impossible for a lender to quote you a particular mortgage rate
without knowing your FICO score. If they do, they are just making
assumptions. If the next lender makes different assumptions you'll be
comparing apples with oranges.
You should know what your FICO score is before you
start talking with any lenders. You can have a lender pull your credit
score but every inquiry will bring your score down a bit. If the inquiry is
made by the consumer, your credit score isn't affected.
Don't waste your time with the "free" credit scores. Those use a different
scoring system. They aren't the FICO scores that most lenders use.
Also, you are entitled to your free credit report every year but that report
doesn't include your credit scores. It's just a report
with all of your credit accounts.
I wrote a separate report on what you get with the
free credit report
sites.
You can go to
www.myFICO.com . The three scores will cost you $59.85. There are
three credit bureaus and your score will probably differ on all three.
Usually a lender will use the score in the middle as the one to base your
pricing on.
Knowing exactly what your FICO scores are allows you to plan ahead. If
your score is well above 740, you are set. There's really no difference
between a 760 score and an 820 score except for bragging rights. But as
you see from the original example, a change in one FICO point can mean thousands
of dollars.
A good loan officer can usually help you get your FICO score up a few points to
the next tier of pricing. Maybe you have one credit card that is maxed out which is making
your credit utilization ratio high. Possibly by splitting the balance over
two credit cards your credit utilization ratio might be lowered which might
increase your credit score just enough to make a difference. The loan
officer can then help you with a rapid rescore to get the changes recognized by
the credit bureaus in a few days instead of waiting a month.
If you are frugal like I am, there's a way to actually get all FICO scores for free if you have
the right credit cards.
The
Discover Card gives you your FICO score from TransUnion
The
Chase Card gives you your FICO score from Experian
The Citi
Card gives you your FICO score from Equifax
If you have these cards, use them. If you're like me, you probably have
these cards and didn't realize they had this nice little benefit. But
don't get new credit cards just for this reason because new lines of credit can
ding your credit scores. Because of this, it's probably best to just spend
the $59.85 at www.myFICO.com and not take
the chance of it affecting your credit scores.
Tim Maitski
Atlanta Communities
www.HomeAtlanta.com
404-216-0472
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