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Your FICO Score is Not Your Mortgage Destiny

The higher your credit score, the lower the interest rate quote you’ll get on your mortgage, right?

As a general proposition, sure. But how much of a rate benefit are you really likely to get with your super-high 800-plus FICO score compared with someone with a much lower score?

You might be surprised. A new statistical review, conducted for this column by mortgage network Lending Tree — based on more than 1 million actual loan offers during 2018 — suggests that, depending on market conditions, a “good” 700 FICO score could get you nearly as attractive a rate deal as someone with an 800-plus score.

FICO scores assess applicant risk and run from 300 to 850. High scores predict minimal risk of default; low scores, substantial risk. According to FICO’s own regular national surveys of rates posted by lenders, a high score is a key to a better rate quote. As of last week, a score of 760 and above on a $300,000 fixed-rate 30-year loan would get an average quote of 4.14 percent. The same loan for a borrower with a subprime score of 620 would get a 5.73 percent average quote, a significant 1.6 percentage-point differential.

Lending Tree researchers examined a huge number of actual offers made to homebuyers — 2018’s entire volume conducted over the platform, batched by FICO scores and down-payment levels. What emerged is intriguing. Though scores and down payments are indeed crucial risk components that factor into a lender’s offer, market conditions and competition also can affect the size of rate benefits to lower-FICO borrowers compared with high-FICO borrowers. In actual application situations, lenders who want to increase their loan business to homebuyers may dig deeper into the credit pool and offer relatively more attractive rate deals to people whose scores are not pristine.

The current market shift — lenders willing to take on slightly more risk with lower-scoring borrowers — is borne out by new data from mortgage software giant Ellie Mae. In its latest study of rates, scores, down payments and other loan terms, researchers found that in December of last year, fully two-thirds — 66.1 percent — of homebuyers insured by the Federal Housing Administration (FHA) had FICO scores below 700. A remarkable 5.1 percent of these had deep subprime scores between 500 and 599, indicating exceptionally high risk of future default. At the other end of the scale, just 1.9 percent had FICO scores of 800 or above. To be fair, FHA traditionally has served homebuyers with lower scores than those in the conventional market served by Fannie Mae and Freddie Mac. But the agency has been slightly more lenient recently on scores and debt-to-income ratios.

Fannie and Freddie also have been open to a wider swath of buyers than many home shoppers might assume. According to Ellie Mae’s December report, more than 1 percent of conventional purchase-loan borrowers had deep subprime FICO scores between 500 and 599. More than one in six loans — 17.7 percent — had scores below 700.

In both FHA and conventional loans, borrowers with low scores may have had “mitigating factors” in their applications that reduced risk, such as high bank reserves or exceptional employment stability.

Bottom line here: Your FICO score is not necessarily your mortgage destiny. Shop the market aggressively, and you’re likely to find a wider range of rates available to you than you imagined.


Mark Your Calendars 

February 6th, 13th, 20th & 27th - Altadena Farmer's Market - Loma Alta Park @ 3:00pm - 7:00pm 

February 9th - 47th Annual Camellia Show and Sale - The Huntington Library, Art Collections, and Botanical Gardens @ 9:00am - 5:00pm 

February 9th - May 18th - NightGarden - Descando Gardens @ 5:30pm

February 9th, 16th & 23rd - Family Nature Walk - Eaton Canyon Natural Area Park & Nature Center @ 9:00am - 11:00am 

February 9th, 16th & 23rd - Pasadena Farmer's Market at Victory Park - Victory Park @ 8:30am - 12:30pm 

February 10th - RG Canning Flea Market - Rose Bowl Stadium @ 5:00am - 4:30pm 

February 11th - Japanese Teahouse Tours - The Huntington Library, Art Collections, and Botanical Gardens @ 11:30am - 3:30pm

February 14th - One Colorado Loves Valentine's Day! Heart Strings and Date Night - One Colorado Courtyard @ all day 

February 14th - Valentine's Dinner at Descanso Gardens - Descanso Gardens @ 5:00pm - 9:00pm 

February 14th - Valentine's Day Cooking Class: The Classic Steakhouse Dinner for Couples - Institute of Culinary Education @ 6:00pm - 10:00pm 

February 16th - Old Pasadena Historic District Walking Tour -  Old Pasadena @ 9:00am - 11:15am

February 19th - Free Tuesday at Descanso Gardens - Descanso Gardens @ 9:00am - 5:00pm 

February 20th - California Cabernet Sauvignon - The Huntington Library, Art Collections, and Botanical Gardens@ 5:00pm - 7:30pm

February 23rd - Old Pasadena Pub Crawl - Old Pasadena @ 2:00pm - 5:00pm 



Contract Corner 

Representative Capacity Signature Disclosures in Trust Sales​

Before The California Association of Realtors (C.A.R.) created the Representative Capacity Signature Disclosures (RCSD-S and RCSD-B), every time that the trustee had to sign their name, they would be required to sign their individual name, followed by writing out the words, “as trustee of the…”. As you can imagine, this was a very monotonous process during a sales transaction, given all the signatures that are required for the contract, disclosures, and other documents. Therefore C.A.R. implemented a “Representative Capacity” provision in its listing and purchase agreements. When checked, it provides that everywhere the trustee’s signature or initials appear on the sales documents, the signature will be deemed to be their signature in a representative capacity, not individual capacity. 

Navigating through the labyrinth of details and information of a transaction is exactly why you, savvy buyers and sellers, need an experienced team. The SARKISSIAN + PERERA GROUP is here to help guide you through this process and ensure that you achieve all of your real estate goals! 

© 2019 Berkshire Hathaway HomeServices California Properties (BHHSCP) is a member of the franchise system of BHH Affiliates LLC. Any unauthorized reproduction or use of this material is prohibited. This information is believed to be accurate as of February 6th, 2019. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals. BHH Affiliates LLC and BHHSCP do not guarantee accuracy of all data. Information has been obtained from various sources and will not be verified by broker or MLS.


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