Recent changes in the mortgage industry has made Fannie Mae (and most lenders) to review their pricing for conforming loand (under $417,000) to better reflect risk by adjusting their pricing (i.e. the interest rate charged on mortgage loans) according to the applicant's credit score, and loan-to-value ratio (LTV).
The lower the credit score, or the higher the LTV, the higher the interest rate a borrower will be charged. Many clients call me excited about low interest rates they see advertised by lenders. However, those are the interest rates that PREFERRED risk borrowers will get - those with a credit score above 720 and an LTV below 80%.
Kathy Durham from Raven Mortgage sent me an example a while back, for a 95% LTV loan, on a 30-year fixed amortization:
720 Score = 5.625% (323 to 1 chance that bills will be paid on time)
620 Score = 6.500% (26 to 1 chance that bills will be paid on time)
Kathy offers some helpful hints to improve your credit score: