Do The Math : Exactly How Much Money Will Your Credit Score Cost You On Your Next Mortgage

For mortgage lenders, credit scores are a terrific predictor of whether a homeowner will pay on a mortgage. 

The lower the credit score, the less likely the homeowner will pay the mortgage on time.

To protect their portfolios from the riskiest borrowers, therefore, mortgage securitizers Fannie Mae and Freddie Mac are adding credit score-based fees to their loan pricing models. 

This is in addition to the quarter-percent "delivery fees" on all loans effective early-March.

The mortgage applicant's credit scores will determine the exact amount charged by Fannie and Freddie.

• Credit scores between 660-679: 0.750% of loan size in fees
• Credit scores between 640-659: 1.250% of loan size in fees
• Credit scores between 620-639: 1.750% of loan size in fees
• Credit scores below 620: 2.000% of loan size in fees

For example, a person with a $400,000 loan size and a 650 credit score could be subject to a "credit-based fee" of $5,000.  That fee jumps to $7,000 for a 635 credit score.

Borrowers subject to the credit score-based fee can choose to pay it in one of three ways:

• Bring extra cash to the closing table
• Build the fee into the new loan amount (on a remortgage)
• Accept a higher interest rate that "finances in" the higher cost

Because the credit score adjustment only applies to loans closing after March 1, 2008, there is plenty of time for a homebuyer to be proactive.

So, if you are purchasing or remortgaging a home that will close after March 1, 2008, make a point to have your credit scores checked as soon as possible.  And, don't use the VantageScore method, either.  Make sure it's your mortgage credit scores that are being reviewed.

If you want help choosing the right model, reach out to your loan officer to help you pick the right one. 

Then, if you find that your scores are below 680 (or are teetering on the edge), take ownership of the situation and work to improve your score.  A terrific source of non-biased credit information is the myFICO.com Web site.