Orion’s management and AEs keep their eye on nationwide economic trends, but primarily focus on our client’s needs. And brokers know that one issue that sometimes derails a mortgage approval is when borrowers' credit profiles change between the original credit inquiry and final approval from underwriting. This could be due to events like borrowers purchasing a new car or paying off a lot of debt. Brokers are well aware of running a secondary “soft-pull” to discover if the applicant’s credit profile has changed since the report in the original mortgage file was run.

More frequently than hoped, Orion’s brokers will hear things like, “Oh, we purchased a new car. Since you already ran our credit, we didn’t think it would matter,” or, “We paid off all, or a lot of, our credit accounts before the credit report because we wanted to eliminate debt and payments to enhance their ability to qualify for a mortgage.” Sometimes this may backfire and result in lowering a borrower’s credit score. These things matter. Underwriting now has to re-work the file and debt-to-income ratios to determine if your client, the borrower, still qualifies with the new payment or potential lower credit score.

A credit score matters when it comes to pricing a mortgage loan, but in the smaller picture, experienced brokers know a change of ten to fifteen points may have no impact. This is because of the 20-point pricing tiers (call LLPAs, or LoanLevel Pricing Adjustments) imposed on lenders by Fannie Mae and Freddie Mac forranges of credit scores. Starting at the minimum score of 620, the pricing improves with each 20-point tier until a credit score is 740 or higher, from 740 to 779 the pricing is the same, and pricing is the same from 780 to the maximum score of 850.

Depending on the type of loan, property, transaction, credit score and loan to value, the pricing difference from tier to tier can be as low as 0.125 percent and as high as 1.50 percent. For example, if your client is purchasing a home with 20 percent down and they can increase their score from 674 to 680, this could improve the rate by 0.25 percent. On a $500,000 mortgage this could save aclient $67 per month, about $800 per year. It is important to keep in mind that, depending on your client’s score and where it falls in the pricing tiers, a small change up or down in the credit score may not impact the interest rate.

Brokers advise their clients that before beginning the process of thinking about purchasing a new home, and before paying down, or off, any credit accounts, it is prudent to have come to a broker for consultation to determine qualifying debt-to-income ratios with current balances. This discussion should also include if there is potential for a strategic paying down, or off, of credit accounts.

Before making any major adjustments to credit accounts, your clients should consult with you about credit scoring, its impacton qualifying and interest rate, and has the access to tools to determine how certain actions may impact credit score. And feel free to consult with your Orion AE if you have questions.

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