Mortgage Rate Adjustments For Borrowers With Low Credit Scores
This BLOG On Mortgage Rate Adjustments Was UPDATED On August 30th, 2017
- Mortgage rate adjustments. also called Loan Level Pricing Adjustments (LLPA) are rate adjustments either added to the rate or discounted to mortgage rates.
- For conventional loans, there are credit score tiers starting at 620 FICO, 640 FICO, 660 FICO, 680 FICO, 700 FICO, 720 FICO, 740 FICO, and 760 FICO.
Credit Scores And Mortgage Rates
Each level of these credit score tiers have different Loan Level Pricing Adjustments.
- For example, top par mortgage rates will be a available for a prime borrower with credit score of 740 FICO or higher.
- That borrower will have premium low par conventional rates.
- As the borrowers credit scores are lower, their mortgage rates will get higher due to rate adjustments.
- On this example, a conventional mortgage loan borrower with a credit score of 620 FICO can only qualify for a much higher conventional mortgage rate.
- It can be as much as 2 points for the same loan just because they have lower credit scores.
- Credit and credit scores are so important when it comes to mortgage qualification and getting the best possible rates.
How Loan To Value Affect Mortgage Rates
Another factor that affect rates is that lenders can penalize a mortgage loan borrower when it comes to loan to value on conventional loans.
- For example, borrowers who have 97% loan to value, 95% loan to value, 80% loan to value, 75% loan to value, and 70% loan to value conventional mortgage loans.
- The lower your loan to value, the less your mortgage rate adjustments are.
- A mortgage loan borrower who puts down 5% will get better mortgage rates than a mortgage loan borrower that put only a 3% down payment.
- A person who puts down 25% down payment on a home purchase will get far less mortgage rate adjustments than someone who puts down 20% on a home purchase.
Single Family Versus Multi Unit Properties
Someone who purchases a two to four unit residential property will get hit with mortgage rate adjustments and will definitely get a higher mortgage rate than someone who purchases a single family home. The mortgage rate adjustments can be quite steep, sometimes as much as a full percentage point.
Location Of Property
Certain mortgage lenders will give a positive or negative mortgage rate adjustments if you are in certain states.
- Depending on the lender, there might be a lender that can give a 0.25% mortgage rate adjustments credit if you live in certain states.
- On the flipside, you can get penalized a certain percentage amount if borrowers reside in certain states.
- For example, a certain lender may hit a mortgage loan borrower 0.625% in mortgage rate adjustments if the mortgage loan borrower lives in certain states.