Harney: Getting the best deal

reduced their borrowing cost by having the individual with a higher credit score apply,” researchers said.

Though they estimated higher payments in such cases of up to $1,400 a year, current credit score-interest rate survey tables published on myfico. com, FICO’s consumerfacing website, illustrate how large loan amounts can lead to more money left on the table.

A $300,000, 30-year fixed-rate mortgage in Illinois, underwritten using a 760 FICO, might have qualified for a 3.3-percent rate quote and a $1,309 principal and interest payment at the beginning of April, according to myfico. com.

If the application were instead underwritten using a score of 650, the rate quote might be around 4.3 percent with a $1,485 per month payment. Annualized, that comes to $2,112 in higher costs, in this case solely because the couple opted for a joint application and the 650 score raised the rate.

To avoid the minimum FICO rule, one of the partners must have sufficient income to qualify for the entire loan amount alone. You might think that’s not commonplace, but out of the roughly 604,000 loan files with joint applicants, 249,000 couples either had one person with a higher FICO and sufficient income to qualify, or both partners could qualify individually on income with even one having a lower score. Of these, one out of 10 joint applicants could have saved money by applying using the higher FICO.

So how would so many applicants have ended up with higher costs than necessary? The Fed study didn’t address this issue but clearly large numbers of borrowers either did not know about the minimum FICO rule — no one told them about it — or they had other reasons to apply jointly.

Bob Walters, chief economist and vice president of the Capital Markets Group for Quicken Loans, told me in an interview that many married and unmarried couples may feel a strong psychological need to have both names on the mortgage note. They are buying the house together and there’s a feeling of joint ownership that’s important to them, even though both could be on the legal title to the house without both being on the mortgage.

Also, Walters observed, if one partner has a low FICO, he or she would likely see an increase in the score as the couple makes regular monthly payments. If that partner were left off the note, there would be no benefit to his or her score.

Paul Skeens, president of Colonial Mortgage Group in Waldorf, Md., agrees that couples need to know about the minimum FICO rule before committing to a joint application. But he argues that the loan officer working with the couple has the prime responsibility to alert them to potential savings.

Loan officers “shouldn’t just be order takers,” Skeens said, “they need to advise (clients) on how to get the best deal,” something the data in the Fed study suggest hasn’t happened enough.