Your Credit Score is Costing You More Than You May Think

Credit scores are the best predictor of how a homeowner will pay on a mortgage, so it's no surprise that credit scores are playing a bigger role in mortgage financing in 2008.

For loans closing after March 1, 2008, Fannie Mae and Freddie Mac will subject the bulk of their mortgage products hefty fees when the loan-to-value exceeds 70%.

Credit scores will determine the amount of the rate adjustment.

• Credit scores over 680: no adjustment to loan size in fees
• Credit scores between 660-679: 0.750% of loan size in fees
• Credit scores between 640-659: 1.250% of loan size in fees
• Credit scores between 620-639: 1.750% of loan size in fees
• Credit scores below 620: 2.000% of loan size in fees

For example, a person with a $250,000 mortgage rate would face a "credit-based fee" of $1,875 just because their credit score is 679 and not 680. On that same mortgage, a "credit-based fee" of $3,125 will be added if they carry a 650 credit score. It would jump to $4,375 for a 635 credit score.

Alternatively, this fee can be "financed" into the mortgage instead of paid as cash. So you have the decision to pay thousands of dollars up front or thousands and thousands of dollars over the life of the loan. The decision is up to you.

If you are planning to purchase a home it would be prudent to have your credit scores checked as soon as possible. If your scores are below 680, or teetering on the edge, take ownership of your credit and start working to improve your score immediately.