That darn FICO & changing mortgage requirements

If you don’t know already the Mortgage world is in an upset.  With requirements for loans having gone so wild, where all you needed was a pulse to get into a home… they have now swung back hard the other way.  The ‘golden rule’ was 20% down and you get the best pricing, no Mortgage Insurance.  That was what every buyer really wanted.  It is what created the 80/20 loan combo as well as the 80/10/10 and many more variations for people with less than 20% down. 

The Mortgage world has created a new ‘gold standard’.  30% down and 70% loan.  Ouch! 

Let me explain what this means.  First when you apply for a conventional loan there are many things that go into determining the interest rate you will be paying.  You credit score, or FICO is first and foremost the biggest contributing factor.  Then the amount of the loan, for example, if your loan amount is less than 100k, you get a little bump in the rate you pay.  Then the % of the loan to the value of the property or purchase price.  Where 20% down was the magic number, now it is 30% down if your credit is anything less than perfect.  The difference between someone with a 720 credit score or higher and someone with a 620 credit score is 2.75%.  So if the interest rate was 6% for the A+ credit of 720 or higher, the same loan would be at 8.75% for the person with a 620 credit score. 

The moral of the story, keep your credit score up!  If your credit score is low, put as much down as possible (your goal is 30%) .  Or purchase a home using an FHA loan (in Maricopa county till the end of 2008 that is a purchase price of about 350k).