Mortgage rates are great, if you qualify
The Wall Street
Journal
Interest rates are near historic lows and home prices are affordable; however,
many borrowers are finding they must have nearly pristine credit records and
hefty down payments to get the best rates.
Making sense of the
story
- Since 2009, credit standards
have become much tighter. For borrowers, this emphasizes the
importance of paying close attention to credit scores.
- New rules unveiled last
week, the result of last year’s Dodd-Frank financial-services legislation,
require banks and other lenders to disclose to consumers the scores used
to determine interest rates charged borrowers, or to deny credit, making
it easier for borrowers to see how their credit scores affect the interest
rates they pay.
- The FICO credit scores on
loans that banks are giving out and that are backed by government agencies
Fannie Mae and Freddie Mac show the new reality. Currently, the two
agencies essentially finance 75 percent of all mortgages by purchasing the
loans from banks, thus shaping how much it costs to borrow.
- FICO scores range from 300
to 850. Prior to the decline in home prices, a score of 700 to 725
was considered solid and, a borrower could expect to be approved for a
“conventional” mortgage at the lowest rates.
- From 2003 to 2006, 82
percent of Fannie Mae mortgages were for borrowers with a score between
700 and 750, but so far in 2011, only 13 percent of Fannie Mae mortgages
carry that score, and just 1.7 percent have a score of 700 to 725.
This year, 75 percent of Fannie Mae mortgages are for FICO scores of 750
to 755, up from less than 5 percent before 2005.
- These trends demonstrate the importance of
understanding credit scores and ensuring credit reports are
accurate. Consumers can check their credit report at AnnualCreditReport.com.
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