Your Credit Score and Mortgage Rate: The Facts
Tune into this week’s episode of Money, I’m Home as Lynne is joined by Consumers Vice President of Mortgages David Pendley to discuss how a having higher credit score ensures that you will get a lower rate on your home loan.
0:00:06.4 Lynne Jarman-Johnson (LJJ): Money, I’m Home! Welcome in. I’m Lynne Jarman-Johnson with Consumers Credit Union. Thanks so much for joining us today, from finance to fitness, we do have it all! And today we’re going to focus on some news headlines that have been happening all week. Actually, the last few weeks about mortgages. Whether or not you have a high credit score or a lower credit score, and are you being penalized or incentivized? Well, you know what? We are going to talk today to David Pendley. He is our VP of Mortgages here at Consumers Credit Union. The one thing that I love about you, David, is you literally just tell us the facts and the headlines have been so polarizing. I just wanted to touch-base with you for a minute to say, “Hey, what’s going on with a credit score and buying a house?”
0:00:51.8 David Pendley (DP): Great question, Lynne. Yeah, I was shocked by the response, and I think it was the media just stirring up a great angle, whichever way you think as far as this is concerned. But here’s what’s really happening. In the old days, the rate was the rate, was the rate. Everybody got the same rate. Now this is the rate, this is what you get. And you started coming up with Loan-Level Price Adjustments. If you put more money down, you get a better rate.
0:01:17.3 LJJ: Loan-Level Price Adjustments. When someone says, because I’ve heard this term a lot and I had to look it up, that’s LLPA.
0:01:24.5 DP: Right. LLPA, Loan-Level Price Adjustments actually came out about nine years ago, and they started really rewarding bigger down payments, rewarding better credit, really rewarding… And so, here’s what I think we all agree on, whatever side of the aisle you’re on, we all agree there’s a home ownership problem in America. It’s hard for people to buy homes in America right now in a certain income category. And so, what the federal government is trying to do is very noble. They’re trying to create home ownership. What they’re doing is they’re pulling back on some of the incentives that they were giving the perfect credit people and the perfect down payment people the large down payment people, and trying to move some of that over so other people can get into the home ownership buying category and maybe not penalizing a couple bumps on your credit so bad. T%hey still are investing in you. And this is through Fannie Mae and Freddie Mac. Those are two agencies that are quasi-government agencies that were taken over during the housing crisis. But once again, that’s not the only place to get a mortgage. They’re doing all the conventional loans, but there’s a whole bunch of other places like Consumers Credit Union, we can do loans that aren’t Fannie Mae and Freddie Mac.
0:02:42.4 LJJ: So, when you hear… And this is what I keep hearing from individuals who are frustrated, and honestly, this isn’t a side issue, right? This is literally just factual. If you have a higher credit score, you will get a better loan. I mean, there is no question in that, right?
0:03:00.3 DP: That’s exactly it. It’s not to your advantage to have a lower credit score. Maybe you’re not penalized as much as you were for having a lower credit score. Maybe you’re not incentivized as high as you were to have a high credit score. They’re just kind of compressing it more in the middle. Yes. It’s kind of shocking when you see that, oh my gosh, initially it doesn’t sound right. So, is it perfect? No, it’s not perfect. I had all sorts of ideas I would have done differently, but it’s a step in the right direction. They’ll probably adjust and manipulate. There’s a whole bunch of lobbying going on right now, hopefully to refine it for the better. But this is a step forward trying to increase home ownership.
0:03:37.8 LJJ: Now did I just hear you say, David, that you’re going to run for president?
0:03:41.1 DP: No, I will not be, but my wife would kill me nor would she join me. [laughter]
0:03:46.1 LJJ: And here’s the thing. What I have been reading and tell me if I’m correct on this, David, because I’m like everybody else. I’m reading a headline, I go into a news article, I read a little bit more in-depth, and then I realize, “Well, wait a minute, this isn’t talking about literally your rate even, it’s talking about the fees that are submitted once you own a home or once you sign the papers on a home. Is that accurate?
0:04:09.7 DP: Here’s exactly how it works. I’m looking at the LLPAs or Loan-Level Price Adjustments, and if it’s one point, so on a $400,000 loan that’s $4,000. You can either pay your $4,000 at closing, no fun, or you can take a slightly higher rate, let’s say, a quarter higher on the rate. So that’s where you’re getting the $60 a month on a $400,000 or whatever, whatever the exact math is on that. So, you have a choice. Either that or you can even have the seller pay it. Like if you, “Hey, can you pay my one point of my financing? Things like that to offset it.” Whereas a somebody who maybe had a few hits on their credit, maybe they were late once on a car payment, it really drove the credit score down. They’re not getting stung as bad as they were before May 1st.
0:04:55.5 LJJ: Right. But again, having a higher credit score long-term, you will pay less on the same amount of loan.
0:05:03.7 DP: Yeah. You win all the way around to have a higher credit score, for your car loan, for your mortgage, for all things, you are incentivized to have a great credit score.
0:05:13.8 LJJ: Let’s say someone calls us up and they’re worried about this new fee structure. How easy is it to sit down and literally get it explained by their mortgage loan officer, by someone here at Consumers, to say, “Look, this is reality. We can’t change what is now in play, but let’s look at how this benefits you if you have a great credit score, and let’s look at how this is also helping if you got a ding.” And believe you me, I know for a fact not everybody listening here has a perfect credit score. Let’s be clear. I mean, we know that. All of us have had trials and tribulations in life. They happen.
0:05:54.3 DP: Absolutely. That’s so important to do before you fall in love with the house. So, sit down with a loan officer, we can actually help raise your credit score. Sometimes it takes as little as one to two months and kind of put you in a better position because that mortgage is going to last a lot longer than that closing date. So, we can do that, but do it early and then we can also, Lynne, you said it so well, this is out of our control. Let’s work with the stuff that’s within our control. Let’s work the numbers on today’s payments, on that particular house’s taxes, on that purchase price, on that loan amount, and let’s see where we’re at. And maybe there’s another option, maybe you would like to do an adjustable-rate mortgage or another type of loan to mitigate maybe some of these hits, if it’s discouraging to you.
0:06:35.6 LJJ: And I do love the fact that, you know what, not all the time does a headline make reality. And it’s okay to dig a little deeper to find out what’s your own, right? And everyone of us are going to have a different one. So, David, I really appreciate your time today.
0:06:50.2 DP: Thanks for having me, Lynne.
0:06:51.5 LJJ: Hey, and everyone, thank you so much for listening. If you have a question, comment or you’d like to send us a topic, let’s talk about some community fun going on out there. Send them my way. I’m Lynne Jarman-Johnson with Consumers Credit Union. Thanks so much for joining us and thank you Jake Esselink for your production skills. I hope everybody has a fabulous week.