(WTAQ-WLUK) — Mortgage lenders are cautioning people against purposely trying to tank their credit scores in hopes of getting a better rate on their mortgage. The warning comes as new regulations are going into effect on May 1 that are meant to help people with lower credit scores get into the housing market.
Anyone shopping for a home right now knows it’s a tough market. Home sales in the first quarter of 2023, are down 40-percent from the previous quarter. “We think it’s maybe because of the interest rate change in November, but the other problem is there’s just no inventory so low inventory means slow sales,” says Jamie Berger, co-owner of Under One Roof Insurance and Real Estate.
And now a rule change, related to how America’s largest loan guarantors, Fannie Mae and Freddie Mac, calculate upfront mortgage fees is set to take effect May 1.
According to Tom Seaman, a home mortgage advisor with Wintrust Mortgage, “Ultimately, I think what Freddie Mac and Fannie Mae are trying to do here is promote home ownership because they feel like people deserve an opportunity to own a home.”
Under the change, someone with a higher credit score will still receive a lower mortgage rate than someone with a lower credit score. The buyer with the lower credit score, under the change, will be paying less of a fee on the mortgage rate while the fee is increasing for the more financially sound buyer.
Seaman says, “Someone at 740 credit score for example is not getting as good of a pricing as maybe someone with a 640 credit score. What I mean by pricing is the credits back. So, they took away some of the credits for a 740 score and reallocated them maybe to a lower credit score so the rate difference from someone from a 740 to 640, there’s a lower gap today than there was maybe several months ago.”
Even though these changes are meant to make home buying more affordable for people with limited wealth or a lower income, local realtors aren’t sure it will impact buyers in our region.
“I don’t know that it’s really affecting a ton of things in the lower end market because our inventory is so low. Cash offers are still beating out loan offers so I don’t think it’s making as huge of a difference right now in our market, but it eventually could,” adds Berger.
Even with these changes, Berger says it’s still a good time to buy a home because costs could go up if you wait a year or two. And if you’re thinking about selling, she adds, it’s a great time to get your house on the market.
These changes only apply to conventional loans and will not impact FHA, VA or USDA loans.
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