Fannie: Low Credit Score? Pay Up!

Even after daddy took her car keys away, Fannie is still behaving badly. Mortgage-giant-turned-government-agency, Fannie Mae, announced new fees for loans to borrowers with less than perfect credit scores. Changes affect a variety of loans, but I'll point out the most common you are likely to see.

If you need to refinance your home, and take cash out to payoff a second mortgage or other debts, you will pay a fee of 1% if your credit score is less than 700. That works out to be a cost of about $4000 for the average borrower.

If your score is less than 660 (just one point lower) then you will have to fork out a whopping 2.25% penalty, or $10,000 in fees to get the same loan that your friend with a 700 score got for free.

Not to belabor the point, but this is just another one of the costs of the current mess that is being passed along to average American homeowners. So what can you do about it? Here are a couple of tips:

• Know your credit score. There are a number of web sites that allow you to retrieve your score. I personally use MyFICO. They let you retrieve your reports, plus your scores, and allow you to track changes in your score over time. Keep in mind that Lenders use the middle score out of the three provided by Experian, TransUnion and Equifax. These may vary, and it is important to know all three.
  
• Repair negative credit. You can do this yourself, but it is a pain in the butt. Any information on your report that is inaccurate should be removed right away. Many older items can also be removed through a dispute process that takes time. In light of the costs though, it is worth retaining the services of a reputable credit repair company. I recommend Veracity Credit Consultants, which is a member of the NAMB and has done wonders for many of my clients.