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For Mortgage Seekers, It's Back to the Basics
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Lenders rely heavily on that score to assess how likely a person is to repay a mortgage on time. The more risk potential home buyers pose, the less likely they are to get loans at the lowest interest rates and with the best terms -- if they can get loans at all.
Loans available to people with credit scores of 660 just months ago are no longer available, Esswein said.
"What people may want to do is take the time to improve their credit score before they start looking for a mortgage," she said. "It will increase the options available to them and improve the rate that a lender will be able to offer them."
But even borrowers with good credit need to carefully weigh their options if they're taking out a loan for more than $417,000, known as a jumbo loan.
Fannie Mae and Freddie Mac, the largest investors in U.S. mortgages, by law can purchase or guarantee loans for single-family houses up to that amount. The limit is determined annually by federal regulators based on the average home price nationwide.
Loans that exceed that limit, and therefore do not conform to Fannie and Freddie standards, have fallen out of favor with investors because they are perceived to be more risky than conforming loans.
When investors yanked their money out of the nonconforming market, many firms specializing in jumbo loans were left with little money to fund mortgages.
Some shut down, stopped making such loans or got more selective about who gets them.
Others simply raised their rates, in part to offer investors a better return for their money. That led to a widening gap between jumbo and conforming loans, making the former more expensive.
People with good credit, a down payment and proof of income can still get a jumbo loan, McBride said. "It just comes at a higher price relative to smaller loans."
