680 FICO Scores Are Now Considered Just Okay

That is the new target score. Even though a 580 score may still barely qualify, over 680 is where the most favorable rates and terms are.

Here is why:

Conforming rates and/or fees have added on for scores under 680. These fees range from ¾ of a point to over 2% if the loan-to-value is over 70% of the purchase price. What does that mean? Well it means that buyers could pay as much as over $6,000.00 more in upfront fees on a 300,000 mortgage than a borrower with a credit score over 680. Think that could break a deal? Not to mention that the lower the score goes, the higher the rates get. So not only are they going to pay more upfront, they will also pay more per month. The difference between a 620 score and a 720 can be the difference between a $300,000 and a $335,000 home for the same payment.

Also FHA has just initiated "Risk based" pricing as well. The upfront FHA fee will be substantially more for lower credit scores (under 680) and so will the monthly MI premiums. Once again, when the amount of money upfront necessary to fund the loan increases and the monthly payments increase the harder it is for the client to obtain favorable rates and terms, if a loan is possible at all.

What is necessary in today's market place is mortgage professionals who can help clients obtain favorable rates and terms while educating them about how to understand and manage their credit scores effectively. There is no reason for anyone to be a "credit score victim". A client's entire monthly budget is affected by their credit score. It has everything to do with the rates and terms they get on everything they finance from credit cards, auto and truck loans, lines of credit, any installment loan, insurance premiums and even possible employment. (75% of fortune 500 companies' check credit report prior to making a hiring decision and last year there was a 55% increase of employers checking). These can have a huge effect on the debt-to-income ratios when it comes time to obtain a mortgage. And the lenders have set that bar lower now than it has been in the past. Making few exceptions for DTI's that exceed 43% total expense ratio.

So what does all of this mean? Well, the lenders have money to loan and for great borrowers, it means they will have little problem obtaining financing. But what about the other 80% that don't fall into the "great" category? Help them get there. Make sure you have mortgage professionals who can help educate clients about how to maintain credit scores so they can be "great". Everyone wins!