The Difference between a 679 and a 680 Credit Score
UPDATE: This information has changed and is no longer valid. Please visit this post for updated information.
Fannie Mae and Freddie Mac released significant changes that will take place on March 1, 2008 impacting how conforming mortgages are priced. Fannie and Freddie state these amended guidelines are due to the rising delinquencies seen during 2007. If your putting less than 30% down on a home and have a credit score under 680: you will have a higher rate on your conforming mortgage.
Here’s a breakdown of the price changes on March 1, 2008 for loans with a loan to value of 70.01% and above:
Credit Score = Pricing Adjustment
679-660 = 0.75%
659-640 = 1.25%
639-620 = 1.75%
Below 620 or missing credit score = 2.00%
The above guidelines do not impact government loans. FHA does have loan limits; VA recently removed their conventional loan limits (you can now have a VA loan up to 1 million).
Subordinate financing (piggy back mortgages) and interest only loans are also facing price increases for Freddie/Fannie mortgages.
Some lenders are not waiting to tighten their underwriting guidelines and are imposing credit score limitations on all products, including government insured loans. On Friday, one of the lenders I work with issued this memo effective immediately:
As a result of mortgage insurance (MI) company restrictions and SunTrust’s effort to improve loan performance, effective immediately for all new applications taken on or after today, Friday, November 30, 2007, the minimum credit score requirements as outlined below apply.
For ALL traditionally underwritten and AUS (DU and LP) processed Agency loan transactions [Fannie Mae/Freddie Mac]:
- A minimum 600 credit score (for ALL borrowers) will be required for LTVs up to 95%, regardless of the AUS approval, and
- A minimum 620 credit score (for ALL borrowers) will be required for LTVs 95.01-100%, regardless of the AUS approval.
- For ALL traditionally underwritten and AUS (DU and LP) processed Government (FHA and VA) loan transactions, a minimum 600 credit score (for ALL borrowers) will be required regardless of the LTV/TLTV or AUS approval.
If you are considering buying a home within the next year, I strongly encourage you to meet with a Mortgage Professional as soon as possible to have your credit reviewed. The credit scores that you obtain from www.freecreditreport.com are different than those used for the purpose of obtaining a mortgage. If your mid score is 679 when you’re ready to buy a home, even if you’re putting 20% down, your rate may be 0.125-0.375% higher than if your mid score is 680. One point in your credit score will make a significant difference in the life of your mortgage.
If you’re contemplating refinancing, there’s no time like the present considering that the 30 year fixed is at a 2 year low or should lenders, like Suntrust, decide to protect themselves from lower credit scores now instead of waiting until March 1, 2008.
About the Author: Rhonda Porter
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Is there a rule of thumb about how much lower an interest rate should be to prompt a mortgage holder to think about refinancing?
Many moons ago, it was 1% lower.
Seattle Veggie, it really depends on several factors:
-How long do you plan on retaining the home/mortgage?
-How long will it take for you to break even on the closing costs?
-Do you have an adjustable rate mortgage?
-Do you have a second mortgage?
-Do you have other financial motivations to refinance?
Sometimes it may not take a full 1% to rate to make sense for you to refinance if you’ll break even on the cost in enough time to where it make sense for you to refi. The reverse can be true as well, if you have a smaller mortgage, a 1% drop in rate may not make enough difference to justify refinancing.
Did any changes occur in underwriting guidlines if your putting less than 30% down payment with a FICO score of 750 or greater?
Not that I’m aware of, House Hunter. How much down are you considering? I did just have another lender change their guidelines to Fannie/Freddies effective now (instead of waiting for March).
It’s really something incredible to keep up with (the constant guideline changes going on) these days.
Hi Rhonda,
I know there are lots of factors, but if I saw that rates were 0.1% lower than what I have on my fixed rate, I would not waste my time looking into the costs and benefits of refinancing. If they were 1% lower (like Ardell said) I probably would. I was wondering if there was a generally accepted point that usually triggers people to do that.
Unless you’re going to break even on the closing costs paid to obtain the refi, 1% lower in rate may or may not mean anything.
I agree, it wont be long before the banks and lenders claw some money back from us, now is the best time to re-mortgage on a fixed term if the option is still available for you.
Hi Rhonda
What’s the rate for a 15 year fixed?
[...] We’ve said before that your credit score is the most important factor in what kind of mortgage package you’ll get and that’s becoming even more true with rash or delinquencies this year. Next spring if you’re putting less than 30% down on a home and have a credit score under 680 you will have a higher rate on your mortgage. Rain City Guide’s mortgage guru Galen Ward gives us the skinny: Here’s a breakdown of the price changes on March 1, 2008 for loans with a loan to value of 70.01% and above: [...]
Galen, you’re now a mortgage guru! Check out pingback 10!
Jillayne, actually the 15 year fixed rate mortgage is excluded from the credit score guidelines I’ve mentioned above. Qualifying for the 15 year is much tougher (and unless you are planning on staying in the home for 15 plus years and you have no debts and your retirement is fully funded; I don’t recommend a 15 year)…
Typically a 15 year mortgage is 0.25% less in rate than a 30 year mortgage.
The reason why I prefer a 30 year (in most cases) is because someone can have a 30 year mortgage and pay additional towards principal should they choose to and effectively create a 15 year mortgage. The reverse is not true.
I like clients to have options.
Yow! I bet you had no idea. I’ve heard Russ Cufano has a pretty cool website too.
Maybe our names should go under our photos, not next to them in the side bar.
For that few points, all you have to do is pay down couple of your credit cards or transfer the debt to spouse!
Rhonda,
Thanks for the article. Good stuff. Pretty amazing eh? This makes it all the more important to be checking out porfolio lenders who don’t follow Fannie Mae or Freddie Mac standards. This will make a good niche for LO’s (being competitive between the 620 – 680 FICO bracket).
Cheers!
Ubersalad, I’m going to do a “folllow up” post on how people can improve their scores.
David, it will be interesting to see how various lenders react.
Rhonda,
What happens if someone has a 700 score when they apply, but the score drops to 679 right before funding? Isn’t the score run again just before docs are drawn?
So the $417k VA limit is now $1M? Without a down payment?
ARDELL, typically a credit report is re-ran if it’s expired (90-120 days old depending on the lender/guidelines). If it dropped, I’m sure it would be re-priced. It this case, based on the chart above, it would cost the consumer 0.75% more in fee to keep that rate they did have at 680.
Nauntie, I believe that’s right…no mortgage insurance and a close to conforming interest rate. (This is new to me…and I have not yet had a veteran ask for a zero down 1 mil loan).
it’s typically re-ran because of UW dropped the ball for not submitting to FNMA, or some stupid policy they have to re-check for credit score prior to funding. I don’t think I know any lenders that do that, it’s a stupid protocol to waste UW time when they have to reject the loan prior to funding. Normally they let you know when your credit report will expire on the loan approval, and they do not re-check for credit unless it expires.
Ubersalad, what do you do for a living? Are you in the mortgage or real estate industry? Just curious…
I was working for a small firm that does construction, mortgage, real estate, interior design, and show room…yep, they tried to do it all.
I left the industry back in January when I felt the market was rapidly changing for the worse. I bailed pretty much, and turned down offers and laughters about exiting the business. Now I am just curiously reading these sites.
Ubersalad, what does one do after exiting the biz? Are you retired now and just reading these blogs for fun?
I am back in project management business and back into the poor sad days of paychecks.
On the prowl to make my return…
I missed the days when lenders were offering No Ratio construction loan with 10% draw at closing. Sigh…they were giving away money.
miss.
I just had another lender email an announcement that they’re switching over to this pricing effective Monday, December 17, 2007. Please don’t float your loans and double check your pricing. Another lender I work with quite a bit is still offering current (pre-Fannie/Freddie price increases) pricing until the end of the year…knock on wood.
[...] Friday’s Mortgage Interest Rates December 14, 2007 Earlier this week I told you about how Fannie and Freddie are increasing the cost of mortgages for anyone with credit scores under 680 using less than 30% down. This impacts A LOT of people. Since I posted that article, I have received many memos from some lenders saying that they are implementing this pricing immediately instead of waiting until March 1, 2008. [...]
[...] The “whole package” for a borrower is more important than ever with lenders adding guidelines to automated findings (which I can’t argue with). Even with a down payment, Fannie Mae and Freddie Mac’s Loan Level Price Adjustments will cost you if your credit score if off by one digit. It’s crucial for anyone considering buying a home (or refinancing) with credit scores under 700 to start early with a Mortgage Professional. Improving your credit scores can save you big time with your mortgage payment. [...]
[...] Published by Garry at 3:26 am under Economy, National Market Conditions Median home price plummets in county There Are Factors Bigger Than Impact Fees Ugly end to ugly year for O.C. housing Recession Theorists Confront Recession Reality: Caroline Baum Inflation Continues to Edge Up The Education of Ben Bernanke Soaring energy prices push inflation to 17-year high Fed’s Beige Book: Economy Continues to Weaken Homebuilder Sentiment Hovers Near Record Low Support unlikely for raising Fannie, Freddie loan limits The Difference between a 679 and a 680 Credit Score Wells Fargo Posts First Profit Decline in Six Years Copyright © 2007The OC Coastal Group Garry Loss htttp://www.theoccoastalgroup.com 888-OCC-Views [...]
[...] Major Credit Score Rate Adjustments — The Hits Keep Coming March 13, 2008 Fannie and Freddie are implementing new loan level price adjustments (LLPA) based on credit score and loan to value. This is a change for the worse from my previous post announcing the original LLPA. Now your credit score is even more critical. Some lenders are implementing these changes immediately with terms on when the loans must be locked and closed. [...]
You talk about now being a good time to refinance, but do you think that it would be better to wait another, say 6 months or 1 year, before refinancing.
Alec, it depends on a persons individual situation and who knows where rates will be in 6 months to a year?
Great answer – for a politican !! If I could afford to wait 6 months, then what do you think? Don’t worry, I won’t sue you for bad advice!!!! Just interested to know what other people think the rates will be in 6 months to a year.
Alec, when you find a crystal ball for mortgage interest rates in this market that will show 6 months into the future, please come back to Rain City Guide and let us all know.
Here’s my prediction: in 6 months, rates will be higher, lower or the same.
Major lenders are currently averaging between 2-3 rate changes PER DAY.
Rhonda, well at least we know Ardell isn’t getting her interest rate information from you when she does her real estate price predictions
Now let’s just wait for the 120 posts complaining that you don’t pretend be be able to predict the future. We already have the first one.
Kary, there was a time in recent history when you could almost predict with some certainty what rates may do in the next week, for example the Jobs Report comes out next Friday. However, MBS (or should I say bond traders) are not reacting as predictable as used to be.
We are in a historic time in the mortgage industry and rates are very volatile.
If I had my feet to the fire, I would GUESS that rates are going to increase over the next 6 months due to inflation. I don’t enourage people to play the “rate game” in this market (or really any).
[...] The Difference between a 679 and a 680 Credit Score [...]
I think that the never ending recent increase in oil prices will have a knock on affect to the price of goods, increased inflation. People will have less disposable income and I think for the normaly conscientious middle class household will have a much less confident outlook, and fewer people looking to move to larger properties, which will mean that the banks will have fewer customers. This, and lower economic growth will both lower interest rates. ultimately will have a knock-on effect with the people’s capacity to borrow, which will have a knock on effect with the ecomony and the profits of bank and mortgage lenders. Interest rates would therefore go down over the next 12 months to counter the anti-growth effect of higher oil prices and it wouldn’t surprise me if mortgage lenders revised their credit score rating system either.
Alec, inflation has a negative impact on bonds (such as mortgage backed securities) so I think we’re going to continue to see interest rates rise.
With how “burned” lenders have become in the “mortgage meltdown” I don’t think they’ll be in a huge hurry to lower the existing credit scoring models. I do think this is going to create more opportunities for FHA financing.
I agree with you Rhonda. People should be aware that rates are still at historically low levels. Banks won’t and can’t loosen underwriting standards…there’s still to much uncertainty on performance. Until losses become more predictable we will continue to experience contraction.
Thanks QDiddy…bonds determine mortgage rates and inflation will drive mortgage rates up. We’re having a better day today because the stock market is getting whammo’d (due to oil) and people are pulling their funds from stocks to seek the safety of bonds (such as mortgage backed securities).
Yesterday, one of the lenders I work with issued 4 rate sheets (intraday rate changes). It’s an amazing time to be in this industry!
I currently have a credit score of 667 without a mortgage loan and using the credit score profiler, if I pay off my credit credits my score will boost to 680. If I get a home equity loan on my current property now or after my score boosts to 680, my score will jump to 700’s. I would wait to apply for a home equity loan after I get my score up to 680. By the way, I would have to wait until 1/2011 for the number of inquiries to be less of an impact on my score. DONT ASK!
Patrick, I’d have to see your entire credit report before I could advise you–I’ve not heard of a credit score profiler. If you pay off your credit cards–do not close them and do use them to purchase a tank of gas every month and then pay it off monthly. THAT will help boost your credit score. Good luck!