Mortgage Rates Dropping, But Can You Get One?

Mortgage rates have plummeted, but that hasn’t made getting a home loan any easier for most borrowers.

As the housing market has imploded, lenders have battened down the hatches on mortgage underwriting, consistently raising the credit scores necessary to qualify for the most favorable terms, and adding to borrowing costs to compensate for any extra risk factors they find. That’s not going to change.

An individual’s credit history is scored between 300 and 850, with 300 very low and 850 perfect. The median score, in which half of the borrowers have a lower score and half have a higher one, is about 720. Only those with very high credit scores are getting the best mortgage deals.

And Fannie and Freddie have raised fees for borrowers with lower credit scores as the housing crisis worsened – they’ve increased twice this year alone. The lower the score, the larger the fee. Even people with the very favorable scores, between 720 and 740, pay a small fee equal to an up-front charge of a quarter point. That’s a big change from the past. Borrowers with scores below 600 may have to pay a fee of a full percentage point or more, adding $120 to the monthly costs of the average loan.

Do you even know what your credit score is? If you’re THINKING about buying a home, this is now a figure you MUST know before you start shopping for loans. Your credit score can make a huge difference now as to whether you can even afford the monthly payments.

We strongly suggest you get a copy of your credit report (you are entitled to one free report every year from each credit reporting agency) AND find out what your actual credit score is. This is NOT usually free, but worth the $20 to $30 you might pay to find out.