There’s a new sentence worth saying to a mortgage lender: please pull my VantageScore, too. For some borrowers, it could mean a cheaper loan. Veronica Dagher lays out the brand-new option in Tuesday’s Personal Journal. The timing matters: Freddie Mac says the average 30-year fixed rate hit 6.76% last week, its highest in more than a year. For context beyond the column, the 10-year Treasury yield touched 5.012% intraday Monday, and the Fed decides on rates Wednesday.
How the switch works
For years, Fannie Mae and Freddie Mac priced loans off classic scores from FICO (FICO), and most lenders still pull only those. This month, their regulator opened VantageScore 4.0 to all lenders, who may now use whichever score earns the better rate.
The two models read you differently. Classic FICO takes a snapshot. VantageScore 4.0 watches two years of the movie: balances, payments, even rent and utilities, and it needs less credit history. It tends to run higher, so Fannie and Freddie’s pricing effectively subtracts 20 points, then applies the same buckets. A better bucket means lower upfront loan adjustment fees — what Fannie and Freddie charge to back the loan.
Who gains? Not borrowers whose FICO is already top-of-the-line. Nick Maciunas, a managing director at JPMorgan Chase (JPM), estimates roughly one in four buyers lands in a higher range when both scores are checked. For those who jump a bracket, he figures 1% less in upfront fees is worth about a quarter-point off the rate. The column names no fee for asking.
Results vary. Chris Sbonek of Mitten Mortgage Lending in Trenton, Mich., has seen VantageScore help some borrowers qualify who couldn’t before, and in some cases FICO comes out higher. His example: on a $400,000 loan, a 680 FICO might draw 6.959%, while a 740 VantageScore could get 6.5%. That’s roughly $44,000 less interest over 30 years.
Count the years you’ll stay
That $44,000 needs all 30 years. In our illustration from the same example, the payment gap is about $122 a month. Sell or refinance after five years, and that’s roughly $7,300 in lower payments.
The same yardstick works whenever a lower rate costs money upfront. Divide the cost by the monthly savings to find your break-even — the month the savings finally cover what you paid. Likely to move sooner? The bargain may not be one.
Umbrellas belong in the car before the clouds roll in. If a home purchase is on your calendar, bring a recent statement; fifteen minutes will show what payment your plan can carry.