If you’re planning to buy a home with a low down payment, you need to be aware of some important but virtually unpublicized price changes underway in the mortgage market.
If you’ve got good but not great credit, such as a FICO score in the mid to upper 600s, you’re going to get hit with higher fees on a conventional (non-government) loan with a low down payment. Count on it. On the other hand, if you’re part of the credit elite — your FICO score is 760 or higher — congratulations: You’re in line for an unexpected discount on fees, despite making a tiny down payment.
What’s going on? Put simply, the mortgage insurance premiums on loans eligible for sale to giant investors Fannie Mae and Freddie Mac underwent a shake-up this month. Applicants with lower scores and smaller down payments got whacked.
To illustrate: According to one mortgage insurer’s rate sheet, the buyer of a $400,000 house with a 660 FICO, a 3 percent down payment and a fixed rate of 4 1/8 percent would have paid $2,359 a month in principal, interest and mortgage insurance before the premium changes took effect April 4. Today, the same borrower would be charged $2,495 a month — $136 more a month, $1,632 more a year. But a borrower with a 760 FICO seeking the same size loan with a rate of 3 7/8 percent would now be charged $162 less per month — $2,002 vs. $2,164 — because of the pricing revisions.