Mortgage Refi and FICO Score Calculation

by Jen
(Connecticut, USA)

Ask Kate about mortgage refi and FICO score calculation: Kate, My husband and I recently applied to refinance our house. When the broker pulled our credit score it was a 739. I was shocked at how low it was, considering the month before it was 798.

Jen continues... Well, after doing some searching and fixing, my credit score jumped to 794 in weeks. Is it possible to ask for a new lock-in rate and base it off my new credit score? I would guess to wait out the 90 days that the lender locked us in for and reapply.

The problem is we lost so much equity in our house, even though we bought it 4 years ago for 6.25% and now want to give us a 4.85%. We also put 20% down and never been late with a payment on any bill. We also have zero credit card balances. This is called a stream line refi with no appraisal needed.

I'm really stuck on what to do here and really want a good rate. We were hoping to get a 4.5% at least with no points. The broker said we don't fit that program because we don't have 80% anymore in the house. We lost about over $100,000 in our home. What should we do?

Kate Answers: Mortgage Refi and FICO Score Calculation

Dear Jen, The adage being worn out I hesitate to say it.

But because it is so fitting...

A bird in the hand is worth two in the bush.

There is no magic formula for mortgage rate predicaments but these would be my considerations if I were in your shoes. However, as the homeowner, you will need to decide what is best for you.

FICO Score Calculation

Credit scores are unpredictable. Various factors influence ratings, many you and I are not privy to. For example, why would your credit score bounce from 798 to 739 to 794 in a matter of weeks?

But here is the real question. Without full control over credit bureaus, can you predict with accuracy what your reported scores will be in 90 days, after your mortgage rate lock-in agreement expires? What would you do if they fell lower causing your interest rate to rise?

Super Kate Tip: To learn how to order a copy of your credit report and credit score from all 3 major credit bureaus, Equifax, Experian, and TransUnion, go to How to Fix A Credit Score. A free credit score is available in seconds.

The entire credit subject is frustrating to the public. No wonder! There are at least three major credit reporting agencies, each with their own scores.

Then lenders have a complicated way of deciding which score to use. For instance, say you receive scores of 750, 770 and 760. Your husband gets 780, 740 and 790. Between the two middle scores (yours at 760 and your husband's at 780), the lowest of the two generally becomes the basis for loan approval.

Mortgage Refi Considerations

In addition, mortgage lenders are required to base loan approval on a credit report that is ordered in their name, not one you supply. On any given day, that credit report can show different credit scores than one you pull yourself. My point is, do you want to risk losing today's credit score? Can you guarantee it will be higher in 90 days?

Here are a couple of other thoughts. Can you predict mortgage rates and trends, 90 days out? How about the weather? What if there is another bank failure or federal lawsuit, not to mention a hurricane or earthquake that causes property damage and prevents the close of your refinance?

Today's Mortgage Rates And Trends

Don't write off this refinance too soon because it is not locked at 4.5 percent. Analyze it.

I don't know the breakdown of your fees to be able to judge the worth of your current locked-in rate. I suggest you review your good faith estimate. Here is help for understanding mortgage closing costs. In addition, compare the proposed and current monthly house payments. How much will the mortgage refi actually save you?

I would also point out that mortgage programs come and go. Property values change. You have already lost $100,000 in property value. What if in 90 days the streamline refi is no longer available due to declining values in your city?

So before you let your mortgage rate lock expire, consider your situation carefully. A bird in the hand today could be the best long-term choice.

Streamline Refi

One more question. You have applied for a streamline refi. The definition varies among lenders but usually means less paperwork and a limited appraisal, or none at all.

But if there is no appraisal in your case, why does your broker say you don't fit a certain program due to lack of equity? I'm wondering how the fallen property value was determined without an appraisal. It might be worth discussing.

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Best wishes,

PS Have you missed me? I've been sick alongside the little ones in our family for over a month. But I'm on my feet once again and it feels good to be back to Ask Kate! :)
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