As little as 2 years ago, an individual with a 640 credit score could find an acceptable mortgage rate, without much in the way of pricing add ons.  Since the bottom fell out of the mortgage credit markets, back in late 2007/early 2008, credit has gotten progressively more and more important.  In fact, “important” is actually underestimating the value.

In 2007, and earlier, there were as few as 4-5 credit score tiers, by which mortgage pricing was derived.  Currently, there are at least 8-10 tiers dividing mortgage pricing determination and they are separated by as little as 19 score points to each tier! These are considered in conjunction with the type of financing (purchase/rate term refi vs. cash out… owner occupied vs. investor) AND loan to value (LTV) and combined LTV (CLTV) of your loan.  There are instances when a borrower could have the virtual “Dagwood Sandwich” of add ons, given the current state of the market.

What does this mean?  It means that, in some cases, depending on the score tier that you “reside” in and your LTV, it might cost a borrower as much as an extra 1/2 point to 1 1/4 points (a point being 1% of the loan amount) to get the same rate as another individual with a score that might be 19 points higher!  Additionally, in the past, depending on the lender, the score used to determine your mortgage rate might have been the middle score of the main breadwinner of the household.  Now, almost inevitably, the lower of the middle scores of both (all) borrowers is used.  So two borrowers can no longer slide into a mortgage using the high credit score of only the main borrower.

There are a number of legitimate things that consumers can do to improve their score.  I will go into those things in a little more detail in future posts.  For the time being, suffice to say that consumers should be ultra conscious of what their credit score is and consciously take even small steps to be improving their score on an ongoing basis.  Sometimes something as little as not closing credit card accounts after paying them off, or strategically analyzing which accounts to pay off, rather than just paying off the highest interest rate or lowest balance, will go a long way toward score improvement in seeking a home mortgage loan.

Bottom line… consult one or more qualified professionals and determine the course that makes the most sense for your given situation.

More later…