Mortgage lenders and brokers use FICO scores to determine mortgage rates. The FICO score will also determine how a client applies and qualifies for a mortgage. A FICO score is a three-digit number between 300-850 that tries to gauge a consumer's creditworthiness.
If a score is higher than 700, a client will not only qualify for the best loam terms, but lenders may also grant the loan without asking questions about income and assets. These loans are referred to as "no-docs" and are fast and easy to get.
If a score is 660 or better, a client will get the best rates available from virtually all lenders. However, full documentation of income, assets, and current debt must be provided.
If a score is between 620 and 660, a client may get a preferred-rate loan but will have fewer lenders to choose from. Lenders will look more closely at any transgressions on the credit report to determine whether they can push the client into the dreaded subprime market.
If a score is less than 620, lenders will consider that client a subprime borrower. Subprime borrowers ay at least 1% more in interest on a home loam and may have to accept features like pre-payment penalties. "What's one percentage point?" you might ask. Just one percentage point difference costs $23,410 for each borrowed over thirty years!