Your credit score is the single most important factor with lenders in determining if a homeowner will pay their mortgage. For this reason the biggest lenders in the mortgage industry, Fannie Mae and Freddie Mac, have decided to add credit score based fees to their loans. This is in addition to the ¼% delivery fee on all loans effective March 2008. The home owners credit score will determine how much this fee will be.

The following is a breakdown of the percentage in fees, a homeowner may incur based on their credit score.

• Credit scores between 660-679: 0.750% of loan
  
• Credit scores between 640-659: 1.250% of loan
  
• Credit scores between 620-639: 1.750% of loan
  
• Credit scores below 620: 2.000% of loan

For example, a person looking to purchase or refinance with a $250,000 loan amount and a 675 credit score could be subject to a credit based fee of $1,875. As you can see from the breakdown the fee can dramatically increase as a homeowner’s credit score lowers.

There will be three different options a borrower can choose to pay this fee:

• Cover the fee with cash at the closing
  
• Add the fee to the loan amount (this may also effect the loan-to-value of the loan)
  
• Accept a higher interest rate that will cover “far and above” the cost of the fee over the life of the loan but, no initial out of pocket money from the borrower.

These adjustments do not take effect until March 1, 2008. That means if you are planning to purchase or refinance a home mortgage after that time, please take the time to get your credit in order now. Contacting a mortgage planner at Cascade Financial is a good start to knowing your credit standing. Then, if you find that your scores are below 680 or very close to the next tier, take a proactive stance and work to improve your score.