Shopping For Mortgage Rates
Home buyers and homeowners needing a refinance mortgage rates are encouraged to shop for mortgage rates. Shopping for mortgage rates has many variables and it is not like shopping for a car or other items. Just because you have perfect credit and low debt to income ratios does not mean that you will always have the best mortgage rates. Each mortgage lender has their own mortgage rate formula and varies from not just a borrower’s credit and financial profile but also depending on the geographic region, and the type of property as well as the mortgage loan program. If example, your mortgage rate will be higher if you were to purchase a second home or investment property versus purchasing a single family home. Your mortgage rate will be higher if you purchase a condominium unit versus a single family home. Your mortgage rate will be higher if you were to purchase a two to four unit building versus a single family unit. Mortgage rates in Florida may be higher than mortgage rates in Illinois. If you have a higher to loan to value, your mortgage rates will be higher than having a lower loan to value. For example, a conventional home buyer does not need private mortgage insurance if they put 20% down payment and will most likely get a good mortgage rate on their conventional loan. However, if the home buyer were to put a 25% down payment versus a 20% down payment, the home buyer’s mortgage rates will be lower than if he were to put a 20% down payment.
Why Are There So Many Variables In Pricing Mortgage Rates?
The reason there are so many variables with mortgage rates, even for mortgage borrowers with perfect credit, is due to risk factors. Most home buyers and homeowners needing refinance mortgage know that the higher your credit scores and better your financial profile that they will get a better mortgage rate. However, credit scores are not everything a mortgage lender considers when quoting a mortgage rate. The property itself, the property type, and the location of the property play a major role in mortgage rate adjustments. The reason the property type affects mortgage rates is due to risk. A condominium unit is riskier for a mortgage lender than a single family home so mortgage rates on a condominium is higher than that of a single family home. Two to four units are riskier investments for a mortgage lender than a single family home because in the event if tenants default on their rental payments or if renters trash the apartment unit, it affects the homeowner. Second home and investment properties are higher risk for mortgage lenders because in the event of financial hardship, a homeowner is less likely to default on their owner occupant homes than they would on their second homes or investment properties.
Shopping For Mortgage Rates With Low Credit Scores
Conventional mortgage rates are prone to credit scores. The minimum credit score required to qualify for a conventional loan is 620 FICO. A 620 FICO credit score is considered a poor credit score for a conventional mortgage loan borrower. The chances are that if you are a conventional mortgage loan borrower with a 620 FICO credit score, you will get stuck with a high mortgage rate. Home buyers or homeowners with credit scores of 620 FICO will be quoted a higher mortgage rate no matter where they shop. Many conventional mortgage lenders will have overlays on credit score requirements and may not even accept mortgage loan borrowers with credit scores under 680 FICO.
Mortgage Rates On FHA Loans
FHA mortgage rates are different. For FHA mortgage rates, any mortgage loan borrower with credit scores of 640 FICO or higher will normally get the best FHA available mortgage rate possible. The reason this is the case is because the government insures FHA loans against losses to the lenders who originate FHA loans. However, FHA mortgage rates will and can be higher for FHA mortgage loan borrowers below 640 FICO credit scores. For home buyers with credit scores under 600 FICO credit scores, FHA mortgage rates can exceed 5.0%. There are a few wholesale mortgage lenders that still offer mortgage rates under 5.0% mortgage rates for borrowers under 600 FICO credit scores.
Options For Mortgage Borrowers With Low Credit Scores
Unfortunately, mortgage borrowers with low credit scores do not have the luxury and option to shop for mortgage rates unless they can improve their credit scores. Borrowers with low credit scores have two options: Wait until they improve their credit and credit scores or purchase a home now with low credit scores and plan on refinancing their home purchase at a later date once their credit scores have improved. It depends on how much in a hurry you are in buying a home. Some home buyers prefer to wait until they improve their credit scores but one of the risk factors they face is that many home prices are increasing in value month after month in many parts of the country, especially in Florida, most areas of California, Illinois, Washington, Indiana, Wisconsin, Texas, Georgia, Nevada, Arizona, New Jersey, Michigan, and Minnesota.
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