Last month Dustin Van Wyck from Cobalt Mortgage blogged about the hidden cost of credit, which are risk based adjustments to interest rates as a result of less than perfect credit. This is his latest post that continues on this theme as those risk based adjustments were increased AGAIN as of 1/14/11! Thank you Fannie Mae.
Recall the previous example below where we showed how Zoey Brooks' credit was costing her $5,400:
FICO SCORE | 740 | 698 |
Purchase Price | $450,000 | $450,000 |
Down Payment | 20% | 20% |
Loan Amount | $360,000 | $360,000 |
Par Rate | 4.75% | 4.75% |
FICO Adjustment* | 0 | 1.5 |
FICO Cost | NA | $5,400 |
With the pending changes taking effect on 1/14/11, this is now going to cost Zoey $6,300 AND also cost those with above a 740 FICO $900. Why is our 740 FICO applicant now paying as well? Because Fannie Mae feels that excellent credit alone doesn't eliminate risk. Fannie believes equity position is playing a bigger role in mitigating risk and they are therefore charging more for those that are putting less than 25% down for 740+ FICO scores and less than 30% down for 680-739 fico scores.
FICO SCORE | 740 | 698 |
Purchase Price | $450,000 | $450,000 |
Down Payment | 20% | 20% |
Loan Amount | $360,000 | $360,000 |
Par Rate | 4.75% | 4.75% |
FICO Adjustment* | .25 | 1.5 |
FICO Cost | $900 | $6,300 |
With these new changes, how does this affect the chart from our previous post? Changes are in BOLD:
FICO SCORE | 740+ | 720-739 | 700-719 | 680-699 | 660-679 | 620-659 |
Purchase Price | $450,000 | $450,000 | $450,000 | $450,000 | $450,000 | $450,000 |
Down Payment | 20% | 20% | 20% | 20% | 20% | 20% |
Loan Amount | $360,000 | $360,000 | $360,000 | $360,000 | $360,000 | $360,000 |
Par Rate | 4.75% | 4.75% | 4.75% | 4.75% | 4.75% | 4.75% |
FICO Adjustment* | .25 | 0.5 | 1.0 | 1.75 | 2.5 | 3 |
FICO Cost | $900 | $1,800 | $3,600 | $6,300 | $9,000 | $10,800 |
The takeaway from this is that if you waited to lock in your rate, you had to account for these adjustments taking place. In other words, all things equal your rate became more expensive after the 14th of January. Hopefully your mortgage banker has either locked you in or made you aware of these sizeable changes.
If you have any questions or comments please feel free to comment or email Dustin directly at dustinvanwyck.com.
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