Credit scores are the best predictor of how a homeowner will pay on a mortgage, so it's no surprise that credit scores will play a bigger role in mortgage financing in 2008. Actually "that date" is more clearly defined. It's March 1, 2008.
Beginning March 1, 2008, Fannie Mae and Freddie Mac will subject the bulk of their mortgage products to the interest rate adjustments when the loan-to-value exceeds 70%.
Credit scores will determine the amount of the rate adjustment.
- Credit scores between 660-679: 0.750% increase to rate
- Credit scores between 640-659: 1.250% increase to rate
- Credit scores between 620-639: 1.750% increase to rate
- Credit scores below 620: 2.000% increase to rate
For example, a person with a 6.250% mortgage rate would see their rate increase to 7.500% just because they carry a 650 credit score. It would jump to 8.000% for a 635 credit score.
Because the credit score adjustment does not go into effect until March 1, 2008, there is plenty of time to be proactive if you think you'll trigger the rate increase.
If you are planning to purchase a home on or after March 1, 2008, it would be prudent to have your credit scores checked as soon as possible. If your scores are below 680, or teetering on the edge, take ownership of your credit and start working to improve your score.
A terrific source of non-biased credit scoring information is myFICO.com.
