Did You Know… If Just One Of You Apply You Could Qualify for a Lower Rate!
Ken Harney, at The Nation’s Housing posed this question: When you and a spouse or partner apply together for a home loan, could you be leaving money on the table by paying too high an interest rate?
His answer: “New research from the Federal Reserve suggests the answer could be a costly yes when one individual has a much lower FICO credit score than the other. That’s because lenders generally are required to price loan applications based on the lower FICO score, not the higher. If you’ve got a 780 score — sterling credit on FICO’s 300 to 850 scale — but your partner has a sub-par 630 score, the lender will likely charge an interest rate keyed to your partner’s lower score. The so-called “minimum FICO” rule is followed by lenders and major investors such as Fannie Mae and Freddie Mac. The net result of this risk-based-pricing practice, according to researchers, is that large numbers of joint borrowers have essentially paid more than necessary for their loan during the past decade.
Examining an unusually large and detailed database of nearly 604,000 conventional home loans from 2003 through 2015, economists found that “nearly 10 percent of prime borrowers who applied for their loans jointly could have lowered their interest rate at least one-eighth of one percentage point if the loan was applied for by the applicant with a higher credit score and an income high enough to qualify for the loan.” To avoid the minimum FICO rule, one of the partners must have sufficient income to qualify for the entire loan amount alone.Why Should both of us apply if one Of Us could qualify for a lower rate?Why would both apply if one could qualify for a lower rate? According to industry experts, many married and unmarried couples may feel a strong psychological need to have both names on the note, even though both could be on the legal title to the house without both being on the loans.”
Why would both apply if one could qualify for a lower rate? According to industry experts, many married and unmarried couples may feel a strong psychological need to have both names on the note, even though both could be on the legal title to the house without both being on the loans.” Source: Ken Harney, The Nation’s Housing
According to Fannie Mae, “Credit scores are based on your credit report. When you use credit, you develop a history. Credit bureaus collect this information from creditors and create a report and score. Your credit score is a snapshot of your credit at a point in time. It’s not permanent. Depending on how you manage your credit, your score can change. The most widely used credit score for mortgage lenders is FICO (Fair Isaac Corporation). FICO scores range from 850 to 300. The higher the number, the better. FICO scores are based on five factors: Payment history, Amount owed, Length of credit history, Types of credit and New credit. Your credit score and history help lenders decide how likely you are to repay debt. When you apply for a mortgage loan, lenders carefully review your credit. Having a low credit score usually results in paying higher interest rates and fees or being denied for the loan. Before applying for a mortgage loan, review your credit to make sure it’s accurate. Be prepared to explain any past problems. Lenders aren’t going to require perfect credit, but they do expect you to pay your debts responsibly.”
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