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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Sunday, February 15, 2009 New rule: Pay bills on time By Steve Tytler Q: We have been in our first house together for just shy of six years. We are not married but both of our names are on the mortgage. We have an opportunity to refinance but my credit score is too low for me to quality for the loan, so an option would be to put the loan in my fiance's name only. Is it true that I would still be on the deed/title? Or because his name is on the loan, does our home become his home? A:Most lenders will let you refinance a mortgage with your fiance being the only person on the loan, while both of you remain on title as owners of the property. Of course, that assumes that your fiance has enough income to qualify for a new mortgage by himself. That's the short answer to your question. Now let's discuss the problem of your credit rating being too low to qualify for a new mortgage. Credit issues are becoming fairly common in this difficult economy. Many people have trouble paying their bills due to job loss or reduced income. And once you get behind on a credit card payment or two, it causes serious damage to your credit rating. If your fiance has enough income to qualify for the mortgage loan on his own, you are in luck. Often, couples who are co-borrowers on a mortgage (married or not) need both incomes to qualify for the loan payments, which makes it impossible to refinance if one person's credit rating drops below the required level for the loan. And to make matters worse, Fannie Mae has adopted "risk-based pricing" that significantly raises interest rates for borrowers with less-than-perfect credit. The risk-based pricing adjustments are based on a combination of your loan-to-value ratio and your credit score, commonly called a "FICO score." To get the absolute lowest interest rate possible, you need to have a FICO score of at least 740 and the loan-value ration of 80 percent or less. Once you drop below the 740 FICO level, the adjustments kick in. Discount points are added to the loan cost to compensate lenders for the additional risk. The term point is shorthand for percentage point and refers to a fee that is based on your loan amount. For example, one point is 1 percent of your loan amount. To see how this works in today's mortgage market, let's assume that your loan amount is equal to 80 percent of your home's appraised value and you could get a 5 percent 30-year, fixed-rate mortgage for 0 points if you had a 740 FICO score. That same loan rate would cost you a 0.25 point fee if your FICO score were 720-739, or a 0.75 point fee if your FICO score were 700-719, or 1 percent fee if your FICO score were 680-699. The adjustments get really steep when you get below a 680 FICO score. The loan rate in the example above would cost 1.75 points if your FICO score were 660-679, and 2.75 points if your FICO score were below 639. The alternative to paying the extra points on a loan due to a low FICO score is to accept a higher interest rate without increasing the closing costs. But with a 660 FICO score, that could mean the getting a 6 percent interest rate rather than a 5 percent interest rate. In the old days (a couple of years ago) there was only one Fannie Mae loan rate. Those days are gone, so pay all of your credit card bills, car payments and other debts on time or you may find it increasingly difficult to refinance in the future. Write Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail economy@heraldnet.com.

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