Every mortgage company I dealt with looked at my middle score. If your middle score is 660, most lenders will be kissing your butt to get your business.. If you are 680, they will be begging you to do business with them. 700 plus, you can have them eating out of the palm of your hand. I was told, but don' t know if it's still true that anyone who has a middle fico of 720, doesn't have to document income, and the mortgage company won't look at your income to debt ratios either.
This is what I suggest before you start shopping for a mortgage, because I made this mistake. Know your fico score, middle score to be more exact, before shopping for a loan. Let the lender know that you have been actively and dilligently watching your credit, YOU KNOW YOUR MIDDLE FICO SCORE, and that you are looking for the best rate that you can get with your middle score. If your middle score is 660 or higher, in California every lender that I spoke to said that a person with a 660 Fico score is considered an Alt-A or off Prime customer, if the person has a 680 or higher fico score, then he or she would be in Prime status with the mortgage company. But I think it also depends on the mortgage company too and how they look at a customer as prime, Alt-A prime, or sub prime if that makes sense to you.
Also, many lenders would promise you the world just to get you to allow them to run your credit. If you shop for a mortage and let several lenders run your credit, I STRONGLY SUGGEST DON'T ALLOW MORE THAN 4 Mortgage companies to run it BECAUSE MANY OF THEM HAVE GAINED ACCESS TO YOUR PERSONAL INFORMATION AND YOU DONT WANT THE THREAT OF YOUR IDENTIFY BEING STOLEN ESPECIALLY WHEN YOU HAVE WORKED SO HARD TO GET YOUR CREDIT SCORES WHERE THEY ARE NOW. Also, h ave the 4 companies run your credit within a 2 week period because fico recognizes it as 1 run as opposed to 4 different runs on your credit report. They will recognize the fact that you are rate shopping for a mortgage and not applying for new credit. BUT AGAIN HAVE A MAX OF 4 BANKS RUN YOUR CREDIT DURING A 14 DAY PERIOD.
What I did to AVOID MANY RUNS ON MY 3 CREDIT REPORTS was tO ask a mortgage loan office to offer me a good faith estimate based on my middle score, and see what interest rate or loan I could qualify for based on income, purchase price or if refi home's approximate value. Some loan officers would tell me how they needed to run my credit report to really work with the numbers, and I would tell them that I would not embarrass myself by lying to them about my middle fico score, and if they wanted my business then they would write up a good faith estimate without me having to run my 3 credit reports. If the closing costs and interest rate I wanted or qualified for were in the good faith offer, then I would let that company run my credit.
Also the mortgage business, as many of you know, is very competitive. I have learned that many mortgage companies make extra money in rebates from the back for quoting us a higher interest rate. The bank will pay, yes pay in rebates, a full 1% point of the loan that we get if we get a mortgage at a higher interest rate even though we qualify for a lower rate.
Let's say, hypothetically speaking, you have a middle fico score of 680, and you call bank #1 asking them about refinancing OR PURCHASING A NEW HOME and what rates do you qualify for, bank #1 would say that they can get you a loan with an interest rate of 6.50%. You shop around call bank #2 and the loan officer there asks you are you dealing with another bank. You tell that loan officer yes and he asks what rate is bank #1 quoting you, and you tell him 6.50%. He's going to tell you if he wants your business that he can get you a rate LOWER because he knows that the loan officer at bank #1 will earn or get a rebate from quoting you a higher interest rate. Loan officers do this all of the time to get your business, and it's perfectly legal.
This happened to me with 4 banks that I was dealing with. It ended up becoming a bidding war and one loan officer was so desperate that he told me that he would just offer me the lowest interest rate, beat anyone's closing costs, and if he couldn't beat any other banks offer, then he would pay to transfer my home's appraisal to another bank.
WHAT I WOULD ALSO SAY TOO IS THAT DEPENDING ON THE PRICE OR REFINANCE OF THE HOME. No one should be paying closing costs higher than $5000. That includes title insurance, and the cost of the bank to process the loan for you. You shouldn't be paying for them to run your credit report, processing fees, loan application fees, administrative fees, loan discount fees. The loan origination fee which is 1% of the mortgage loan covers all of those fees for processing the loan that you want.
Also, before you sign your life away, LOOK AT THE SETTLEMENT STATEMENT. The Settlement Statement is the final statment you will see with all of the actual numbers that you are paying for closing costs and the interest rate. If the numbers are different from your good faith estimate that the bank quoted you (meaning higher interest rate that they quoted you, and higher closing costs) then DON'T SIGN THE DOCS AND CALL UP YOUR LOAN OFFICER AND TELL THEM EITHER KISS YOUR BOTTOM AND DONT CLOSE. OR REDO THE NUMBERS AS ORIGINALLY AGREED.
