Mortgage Rates With Low Credit Scores And Pricing AdjustmentsM
This BLOG On Mortgage Rates With Low Credit Scores And Pricing Adjustments Was PUBLISHED On March 30th, 2019
Borrowers will get higher Mortgage Rates With Low Credit Scores.
- Lenders will hit borrowers with higher Mortgage Rates With Low Credit Scores
- Many consumers may hear that mortgage interest rates have dropped to a year low and
- However, this interest rate is for prime borrowers with 740 credit scores and 20% down payment
- This rate is called the par interest rate
- Then, there
isloan level pricing adjustments (LLPA)
- LLPA is also referred to as pricing hits
We will discuss Mortgage Rates With Low Credit Scores And Pricing Adjustments in this blog.
What Determines Mortgage Rates
The higher the risk lenders take on by borrowers, the higher the mortgage rates. Prior bad credit does not determine mortgage rates. Outstanding collections and charged off accounts will not determine mortgage rates. Prior bankruptcies, foreclosure, deed in lieu of foreclosure, short sale does not determine mortgage rates.
Here are the factors that determine mortgage rates:
- Credit scores
- Debt to income ratio
- Loan To Value (The higher the loan to value, the higher the mortgage rates)
- Manual versus automated underwriting
- Type of property Condos and multi-family have higher rates than single-family homes)
- Loan amount (Lower loan amount means higher rates)
- Owner occupant versus investment property mortgages (Investment property loans have higher rates)
- FHA 203k Loans Versus Standard FHA Mortgages (FHA 203k Loans have higher mortgage interest rates
Discount Points Charged By Lenders
There is a maximum mortgage rate a lender can charge on government and conventional loans. For example, maximum mortgage rates on FHA Loans today cannot be more than 5.75%. This the maximum a lender can charge with all loan level pricing adjustments. However, lenders will charge higher LLPA with borrowers under 600 credit scores including discount points.
Let’s take a comparison of two borrowers:
- Borrower A has 700 FICO
- Borrower B has 580 FICO
- They are each purchasing a $200,000 home with an FHA Loan
- Borrower A will get an interest rate of 4.5%
- Borrower B will get an interest rate of 5.625% PLUS he needs to pay 2% discount points
- Discount points can be paid with sellers concessions
- A 2% discount point charge on a $200,000 loan is equivalent to $4,000
Borrowers with low credit scores will definitely get higher mortgage rates and may possibly pay discount points. It is best to try to boost credit scores prior to applying for a mortgage.
Qualifying For Mortgage With Low Credit Scores
Borrowers with low credit scores will definitely get higher mortgage rates due to loan level pricing adjustments. The best way to get lower mortgage rates is to try to boost their credit scores before applying for a mortgage. There are some quick fixes in raising credit scores. Borrowers with no revolving credit tradelines can get a few secured credit cards. Secured credit cards are the best tools for increasing credit scores. Three secured credit cards can do major wonders. Borrowers with maxed out credit cards can pay down their credit card balances to a 10% credit utilization ratio. Maxed out credit cards