Please prepare your clients for Fannie Mae's Risk Based Pricing!

One of my clients asked today after reading my forum post on my site about how much their rate can be effected now with Fannie Mae's new risked based scoring model. This table above is for a purchase transaction, if you are interested in a cash out refinance, then there is yet another table in addition to this one, so it can make a huge impact the lower your score. What does this table mean?

Well lets assume you are purchasing a new home and you are rolling over a 20% down payment from the sale of your current home and you need an 80% loan on the new home. If you have had a dispute with your credit card company and they did not remove a blemish and your score dropped to 659, from 721, you can expect to pay an additional 1.750% in fee! Meaning, if your new loan amount is $300,000, you have to pay 1.75% of that amount or $5,250 more in fees to get the same rate you would have been offered had your credit score remained above 720.

The choice in this case is either pay the fee at closing to get the lower rate or add the fee into the rate and expect your rate to jump .375 to .50%, a very significant jump.

I have had the unfortunate but bitter sweet blessing of gaining new clients from panicked realtors that were shocked, surprised and angered by their mortgage broker or loan officer advising them at the closing table that their rate or fees had jumped considerably due to their credit score and a "new" penalty Fannie Mae has imposed. This is nothing new and has been out since the first of the year. It is malpractice and frustrating for the professionals that are preparing their clients upfront. Another part of the problem is LO's locking in rates prior to pre-approving a client or even pulling their credit. In the scenario above, the LO assumes the client has a 720 or above credit score or is running their business based on old information and quotes the client their locked rate only to find out there is a 1.75% fee penalty because as in the scenario above, they had a 659 not a 720.

This is why upfront planning with your mortgage professional is imperative when considering listing your home or making an offer on a new home. There are quick steps we can take to jump a credit score 20 to 40 points in a matter of weeks just by adjusting some balances on some credit cards possibly, so I strongly suggest having your credit pulled so you can plan properly with no unfortunate surprises.