Latest Mortgage Woes

Last week, a credit score of 620 was enough to get buyers the best interest rates. Today you most likely need a credit score of at least 680 and a down payment of at least 30% to be offered the best rates. Anything less than that will cost you.

You’ve probably been hearing a lot about “subprime” mortgages. Well, with this move by Fannie Mae and Freddie Mac, a lot of prime borrowers have just become subprime borrowers. Even though these rules don’t take effect until March 1, 2008, some lenders are already imposing surcharges on borrowers.

Kenneth Harney wrote an excellent article detailing the new surcharges in Saturday’s Washington Post Real Estate section.

I foresee a lot of borrowers going back to FHA and VA loans in the very near future. A 30% down payment is out of reach of many buyers who have excellent credit. FHA interest rates are not credit score driven (of course, this is subject to change) and the down payment is only 2.25%. Of course, the maximum loan amount with an FHA loan is lower than the maximum for a conventional loan.

FHA loans pretty much disappeared when the market got so crazy a few years ago, but I think they will be back with a vengeance very soon.

© 2007 Susan Pruden.

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