It used to be that a 720 FICO score was all you needed to ensure you qualified for the lowest rate on a mortgage. At least credit-wise.
In other words, anything higher than a 720 FICO didn’t really matter, beyond bragging rights, and perhaps a safety cushion if your score dipped a bit prior to application.
Then came the arrival of the 740 FICO threshold, making it slightly more difficult to qualify for the best rate when applying for a home loan.
Now, Fannie Mae and Freddie Mac are upping the ante, and perhaps rubbing salt in the wounds of anyone interested in getting a mortgage.
They have unveiled not one, but two new FICO thresholds for most conforming mortgages. A 760+ bracket and a 780+ bracket.
A 780 FICO Score Matters for Mortgages Now
In case you’re not aware, mortgage lenders have pricing adjustments for all types of loan attributes.
This can include property type, loan type, loan-to-value ratio (LTV), credit score, and many others.
Perhaps the biggest factor in loan pricing is the borrower’s credit score, as it plays a major role in potential default rates.
Simply put, a borrower with a higher FICO score is entitled to better loan pricing on the basis that they’re a lower default risk. The opposite is also true.
As noted, you only needed a 720 FICO score to qualify for the best pricing on a conforming mortgage back in the day.
Then came the 740 tier, which made things a little harder.
Now, Fannie Mae and Freddie Mac are going to require a 780 FICO if you want the very best pricing on your mortgage.
Why Are Fannie Mae and Freddie Mac Upping Credit Score Requirements?
In a nutshell, the FHFA, which oversees Fannie and Freddie, wants them to focus more on underserved borrowers.
This means pricing adjustments have been shifted in favor of those more in need, while new pricing tiers have been introduced for all borrowers to boost capital for the GSEs.
The FHFA believes that “developing a pricing framework to maintain support for single-family purchase borrowers limited by wealth or income, while also ensuring a level playing field for large and small sellers…”
In practice, this means borrowers with low FICO scores and/or limited down payments will often see their loan pricing improve as a result of favorable pricing adjustment changes.
Conversely, traditionally strong…