Shopping Mortgage Interest Rates With Bad Credit And Low Credit Scores

Shopping Mortgage Interest Rates With Bad Credit

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this blog, we will cover and discuss shopping mortgage interest rates with bad credit and low credit scores. Many homebuyers assume they cannot shop for mortgage rates just because they have low credit scores and bad credit. This is not true. Shopping mortgage interest rates with bad credit and credit scores down to 500 FICO is highly recommended. Mortgage Rates recently hit a 3 year high. Many industry experts are expecting lower interest rates due to the Federal Reserve Board announcing they will not increase interest rates. Ever since the Federal Reserve Board lowered interest rates to zero percent, mortgage rates have been sliding down to historic lows, and this year, starting in March, they started skyrocketing.  With lower interest rates by the FEDs, this means lower mortgage rates by lenders. Unfortunately, with the recent surge in rates, lenders are charging discount points for lower credit borrowers. Shopping Mortgage Interest Rates are recommended for borrowers. However, Shopping Mortgage Rates with bad credit and low credit scores may prove to be a challenge for home buyers.

Shopping Mortgage Interest Rates By Borrowers

Shopping Mortgage Interest Rates By Borrowers

Any borrower with at least a 740 credit score, no derogatory credit, low debt to income ratio, and lower loan to value will have no problem qualifying for a mortgage. Any lender would love their business. Lenders will offer these types of borrowers the best mortgage rates and terms. Shopping mortgage interest rates by these types of borrowers are definitely recommended. Lenders will try to give these types of borrowers the best rates and terms to get their business. However, shopping for mortgage interest rates by borrowers with under 620 credit scores, outstanding collections/charged-off accounts, and a history of late payments may become a challenge but every borrower should still try.

Do Lenders Have Different Rates For Low Credit Scores?

Not all lenders have the same rates on credit score borrowers under 500 FICO. Most lenders will charge discount points for borrowers under 600 FICO. However, discount points charged vary from lender to lender. Lower credit score borrowers often get discouraged shopping mortgage interest rates. They often are happy that a lender will approve them for the loan. However, shopping mortgage interest rates by borrowers with lower credit scores are highly recommended. Always negotiate to get the best mortgage rates. Not all bad credit mortgage lenders have the same rates on lower credit score borrowers.

How Credit Scores Affect Loan Level Pricing Adjustments On Rates

The borrower’s credit scores have the biggest impact on mortgage rates on government and conventional loans. The loan to value does not matter on government loans due to the government guarantee. However, the loan to value does impact mortgage rates on conventional loans. There are other factors that impact mortgage rates. Factors that impact mortgage rates are referred to as loan level pricing adjustments (LLPA). LLPA is pricing hits that lenders charge borrowers.

Factors That Affect Pricing of Mortgage Rates

Here are examples of Loan Level Pricing Adjustments:

  • Lower credit scores
  • Loan To Value
  • Debt To Income Ratios
  • Manual versus Automated Underwriting
  • Type of property
  • Occupancy
  • The state the property is located
  • Loan amount

A lender can implement any loan level pricing adjustments on a borrower. LLPAs are pricing adjustments for borrowers with higher-risk factors deemed by the lender.

Buying Down Rates With Discount Points

Shopping Mortgage Interest Rates

Lenders can only charge a certain maximum mortgage rate on borrowers. If a borrower has low credit scores and other credit issues and the lender cannot tack on any more Loan Level Pricing Adjustments (LLPA), the lender can charge the borrower discount points. 1% discount point is 1% of the outstanding loan balance. Borrowers with under 620 credit scores will often get discount points charged. Discount Points can be very expensive. Discount Points can be paid with sellers’ concessions.

Lenders With Lowest Mortgage Interest Rates With Bad Credit

For more information on the contents of this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays and/or last-minute mortgage loan denial. Gustan Cho Associates Mortgage Group is a national five-star direct lender with no lender overlays on government and conventional loans. Our team is available 7 days a week, on evenings, weekends, and holidays.

This Article on Shopping Mortgage Interest Rates Was Updated on July 9th, 2022.