Mortgage Rates Will Change Dramatically Very Soon for Half of Borrowers
Fannie and Freddie Mac loans (all conventional non FHA and non sub-prime) loans will go through a fundamental change in pricing based on credit scores.
Essentially it will raise the rate as credit scores decline, every 20 points or so. A 620 score for example, will carry about a 1 point rate increase, so that a 7% rate will become about an 8% rate. This will become effective on all loans delivered on March 1, which effects loans originated in February or late January. However, some large wholesale banks have already announced changes.
Anyone with a credit score of 680 or below (680 is average) thinking of buying or refinancing should make a move now. First-time buyers in particulare are effected since younger people tend to have less credit and lower scores. (If 680 is average, obviously one-half of the borrowers in the market are adversely affected.)
The effect of a higher rate means a person or couple will qualify for less. However, the changes will not effect FHA loans, so that will be one good option - but with some added costs compared to conventional.
This is a certainty, and not speculation. This has nothing to do with whether rates in general go up or down. The market might go down or up a quarter of a point, but regardless, a person with a 620 score will be a full point OVER market at that time. The justification is risk-based pricing.
Rather than wait until the New Year - a good time to buy is NOW!
Jeff Cook
Financing Homes and Commercial Investments
HomeTrust Mortgage Corporation
Member, Illinois Association of Mortgage Professionals (IAMP)
1475 East Woodfield Road, Suite 110
Schaumburg, IL 60173
Mortgage Rates Will Change