Low Rate Mortgage Help

For the last 30 years, the news has been flooded regarding the record low interest rates being applied to 30-year fixed-rate mortgage loans. The rates were close to 4.5 percent just last year and are now nearly 5 percent. The major problem with this is that when a borrower calls a mortgage lender to get this amazing rate, he or she is often turned down.

This rejection is because most borrowers have credit scores that are below today’s ‘prime’. Experian puts the average score at 771 on a scale from 501 to 99. FICO, who developed the scores used to assess credit risk, says the median is 720 on a scale from 300 to 850.
Under today’s guidelines of Fannie Mae and Freddie Mac, only those borrowers with scores of 740 or more and a down payment of at least 20 percent are able avoid extra charges on a loan that could possibly raise the interest rate. These two government agencies set standards for most mortgage lending in the US.

Borrowers who have credit scores between 700 and 740 usually see additional charges, which is normally one to three-quarters of a percentage point of the total loan amount. This amount can either be paid up front or worked into a higher interest rate.
In 2008, Fannie Mae and Freddie Mac begin raising prices on higher-risk borrowers. For example, scores that fell between 680 and 700 were charged one percentage point when applying a down payment of 20 to 25 percent. A spokesman for Freddie Mac says this risk-based approach to pricing protects against losses from foreclosures.

The chief executive in Bellport, NY of the Safe Harbor Capital Group, Michel Raab-Francis, states that a score of 680 is common for people who have several credit cards with high limits. If a borrower is able to put 20 percent down on a loan, has 10 years of strong employment, a savings, a 4o1(k) and a credit score of 680 should not be penalized based on the credit score alone.
Even with these changes, there is still hope for mortgage loan borrowers. Fannie Mae and Freddie Mac are slowing down the pace at which they are applying more penalties on borrowers with lower scores. The average credit score with Fannie Mae or Freddie Mac was 758 in the last quarter of 2009, this is down from 761 in the third quarter.

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