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Why You May Need a FICO Score of 780+ When Applying for a Mortgage

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It used to be that a FICO score of 720 was all you needed to make sure you qualified for the lowest mortgage rates. at least credit wise

in other words Anything above 720 FICO doesn’t matter other than bragging rights. And maybe a safety cushion if your score drops a bit before applying.

Then, the advent of the 740 FICO threshold made it a little harder to qualify for the best rates when applying for a home loan.

Now Fannie Mae and Freddie Mac are raising the odds. and perhaps rubbing salt on the wounds of anyone interested in getting a mortgage

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They did not disclose the two new FICO criteria for most consistent mortgages, bracket 760+ and bracket 780+.

The 780 FICO score is important to mortgages right now.

In case you didn’t know mortgage lenders have price adjustment for all types of loan qualifications

This may include property type, occupancy, loan type. loan-to-value ratio (LTV), credit score and many more.

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Perhaps the biggest factor in pricing a loan is the borrower. credit scoreas it plays an important role in the potential default rate.

Simply put, borrowers with higher FICO scores qualify for better loan pricing based on lower risk of default. The opposite is also true.

as specified You only need a FICO score of 720 to qualify for the best prices on corresponding mortgage back in the day

Then came level 740 which made it a little more difficult.

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Fannie Mae and Freddie Mac are now requiring 780 FICO if you want the best mortgage rates.

Why did Fannie Mae and Freddie Mac add credit score requirements?

In summary, the FHFA, which oversees Fannie and Freddie, wants them to focus more on disadvantaged borrowers.

This means that price adjustments have been changed to help those in need more. While new pricing levels have been introduced for all borrowers to increase their capital to the GSE.

FHFA believe “Developing a pricing framework to maintain support for single-family borrowers constrained by wealth or income. At the same time it creates an equal playing field for sellers big and small…”

In practice, this means that borrowers with a low FICO score and/or limited down payment tend to see their loan pricing improve as a result of favorable price adjustment changes.

On the other hand, traditionally strong borrowers (high FICO, large down payment) may view their home loan as more expensive.

while there A lot of changes are coming.Most striking to me is the new level for credit score. with category 760-779 and category 780+

before this change Effective May 1, 2023, all you need is 740 FICO.

If you applied for a home loan when these changes were made You will need at least 780 credit scores.

Mortgage prices get worse for many borrowers with FICO scores between 700 and 779.

Current LLPAs

Adjusting the current loan price


new loan price adjustment

As seen in the second chart above, a borrower with 740 FICO and 80% loan-to-value (LTV) will see a credit score adjustment of 0.875%.

This compares to 0.375% for borrowers with 780+ FICO and 80% LTV, it’s a 0.50% difference.

For a $500,000 loan, that equates to $2,500 in additional upfront costs or possibly mortgage rate That’s above .125%.

so Home buyers with 20% down payment And with just a score of 740 (traditionally good credit), it pays more in closing costs or gets a slightly higher rate.

The good news is that borrowers with FICO 780+ will see their price adjustment drop from 0.50% (before this change) to 0.375%. See both charts.

That’s bad news for others, like borrowers with a 739 FICO score and a 20% decline, which would see costs go up 0.50%.

Note that these adjustments only apply to loans with maturities of more than 15 years, also known as “financial adjustments.” 30 year fixed mortgage.

if we are talking about cash out refinancingThe credit score for 780 borrowers at 80% LTV would be 1.375%.

Prior to this change, over 740 less reliable FICO borrowers were affected by the same price adjustment.

Soon, 740+ borrowers seeking up to 80% LTV cash out will see a price increase to 2.375%.

That 1% increase in fees equals $5,000 on a $500,000 loan, or again, higher mortgage rates. Ouch.

And refinancing doesn’t make much sense given the recent rise in sleep rates.

Do I Need a 780 FICO Score to Get a Home Loan?

before you worry too much need Score 780 FICO to get a mortgage. In fact, the minimum FICO score of 620 for compliant loans will not change.

However, if you need best mortgage rates You need a FICO score of 780+, in short, a score of 20 above.

The change just needs a better credit score to get the best price. It doesn’t lock anyone out.

on the contrary This makes mortgages more affordable for people with lower credit scores. and even eliminating the criteria “<620” and “620-639” and replacing them with levels “≤ 639” instead.

So it depends on your credit score and down payment. may not affect you Or it could lead to dramatically better pricing.

For example, a borrower with a 620 FICO score and a 5% down payment will see their price adjustment drop as much as 1%.

That could translate into a 0.25% to 0.50% lower interest rate or lower closing costs. And borrowers with a 3% down payment and 620 FICO will see their prices improve by an additional 1.75%.

This can result in mortgage rates of 0.50% or lower, depending on the lender.

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