You could pay higher mortgages fees if you have a higher credit score

As interest rates increase, buying a home has become more expensive. Now, having good credit could hurt you when you try to buy a home or refinance it. Starting May 1st, some with higher credit scores could pay a higher fee while others with lower scores could pay less.

Owning a home is a part of the American Dream. Now the federal government is making it easier for some to turn that dream into reality.

“They are changing the matrix for borrowers with limited down payments and credit scores 680 and below will pay lower level of fees,” Florida Gulf Coast University Real Estate Professor Dr. Shelton Weeks said. “The way the rule is set up, it will increase the monthly fees that borrowers with credit scores above 680 and higher down payments have to pay.”

The changes are part of the federal government’s effort to provide equitable access to home ownership. Low to median income first-time homebuyers are among the groups who benefit from the changes.

For example, if someone with a 660 credit score bought a $500,000 home and put down the minimum down payment, their rate would be about 6.25 percent. A buyer with a 740 score would have a higher rate, 6.5 percent.

“It’s perhaps the worst idea I’ve ever seen related to mortgage lending,” Dr. Weeks added. “When you think about borrowers who are doing the right thing establishing solid credit and saving for a down payment, those are the individuals we are going to penalize and try to reward individuals who are not yet ready to take that step and borrow to purchase a home.”

Dr. Weeks worries these changes can actually hurt the people they aim to help.

“Treat the cause, not the symptom. The symptom of the lack of financial literacy is you have people who can’t qualify for mortgages. A lot of times is they just aren’t ready yet. Maybe that person needs to work on establishing their credit for another year or two or save for that down payment for another year or two.”

Dr. Thomas Felke is a Professor of Social Work at FGCU and he feels differently.

“For a lot of families, especially those who are right at that line, the ability to be able to obtain a home is really the foundation for generational wealth so that is kind of the idea behind it,” Dr. Felke added. “It’s really setting up that idea for a family hoping that with that in place they’ll be able to thrive in other areas.”

He believes anything the country can do to help people get good, affordable housing is important. It also needs to come with financial education.

“I do think that it is an opportunity but the opportunity is going to work in so far as people have the proper supports to really guide them through that process and that they have a good understanding of what they are involving themselves in and also having continued support throughout the process,” Dr. Felke said.

There are a number of organizations across the country that provide free financial literacy courses and programs. Florida’s Division of Consumer Services has a number of free online financial education programs including some for current and former military, and those with developmental disabilities. Habitat for Humanity of Lee and Hendry Counties also offers financial management and budget counseling.