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real estate

Expect to Pay More for a Mortgage Soon

Everyone -- even those with the best credit scores -- will be hit with higher fees.

Borrowing to buy a home will get more expensive soon, especially if you have a high credit score because you'll be hit with a new fee.

Fannie Mae, which sets the standards for mortgages it buys from lenders, is increasing the adverse market charge on home loans purchased on or after April 1 and for the first time will require borrowers with a credit score of 740 or higher to pay this fee. Some lenders will likely start adding the increased (and new) charge to mortgages in the coming weeks, says Cameron Findlay, chief economist for LendingTree.com, an online mortgage-shopping service. By February, most lenders will have followed suit.

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Fannie Mae created the adverse market charge in 2008 when the housing market started to deteriorate, Findlay says. The charge, which is added to the mortgage rate on a loan, penalized those with low credit scores and rewarded borrowers with higher credit scores by enabling them to get the best mortgage rates.

In 2009, Fannie Mae increased the fee for most but still exempted those with scores of 740 and higher from the fee. Those with scores of 720 to 739 had to pay a 0.25% fee only on mortgages that were 75.01% to 80% of a home's value.

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The latest fee increase, though, will force those with credit scores of 720 to 739 to pay a 0.5% charge on a loan that is 75.01% or more of a home's value -- which translates to an extra $800 a year on a $160,000 loan, for example. And those with scores of 740 or higher will pay an extra 0.25%.

The charge rises as credit score falls -- to as high as 3.25% for borrowers with scores below 620. Fannie Mae has a table that shows adverse market charge for all the credit score ranges.

In the coming months, expect to see a greater disparity of mortgage rates as lenders start applying the higher charge, Findlay says, making it even more important to shop around for the best rate. For more on comparing rates, see Get the Best Deal on a Mortgage.

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