What Are Some Things That Determine Mortgage Rates

Major Things That Determine Mortgage Rates

Things that determine mortgage rates are credit scores and property types. However, with Conventional Loans, other things that determine mortgage rates besides credit scores and property types are loan to value.  Loan to value are not things that determine mortgage rates with FHA Loans, VA Loans, and USDA Loans because these entities insure mortgage loans in the event the mortgage borrower defaults on their mortgage loans. However, Fannie Mae and Freddie Mac are the two mortgage giants in the United States that govern and regulate Conventional Loans. Conventional Loans are not insured by Fannie Mae or Freddie Mac. Any loan to value that is higher than 80% LTV, Conventional mortgage loan borrowers need to get private mortgage insurance and any Conventional mortgage loan borrower who puts at least 20% down payment or more does not need to get private mortgage insurance. FHA Loans require mandatory a one time upfront FHA mortgage insurance premium as well as an annual FHA mortgage insurance premium for the life of a 30 year fixed rate FHA mortgage loan. VA Loans does not require an annual VA mortgage insurance premium but does require an upfront VA mortgage insurance premium that can be rolled into the balance of the VA Loan.. USDA does require an annual USDA annual mortgage insurance premium.

Things That Determine Mortgage Rates: Conventional Loans Versus Government Loans And Credit Scores

Conventional Loans are by far the loan program that has the biggest mortgage rates versus credit scores impact.  In order to get the lowest Conventional Loan mortgage interest rates, the Conventional mortgage loan borrower needs to put 25% down payment on a home purchase and needs a credit scores of over 740 FICO credit score. The lower the down payment and higher loan to value, the higher the mortgage rates will be for the Conventional mortgage loan borrower. The lower the credit score, the higher the mortgage rates will be for the Conventional mortgage loan borrower. Conventional Loans are not insured by any government entity so private mortgage insurance is required for all Conventional home buyers who put less than 20% down payment and has a loan to value that is higher than 80% LTV.

Credit scores does have impact on government loans. FHA Loans, VA Loans, and USDA Loans are called government loans because they are insured by a governmental agency. FHA Loans are insured by the Federal Housing Administration, VA Loans are insured by the United States Department of Veteran Affairs, and USDA Loans are insured by USDA Rural Development Guaranteed Housing Loan Program.  These government housing guarantee agencies will guarantee the mortgage lender in the event if the mortgage borrower defaults on the government mortgage loan program. Due to this guarantee, mortgage lenders of these government mortgage loan programs do not care how much down payment the mortgage borrower puts as down payment because in the event of borrower default, it gets insured.

Mortgage rates do have an impact with government loans, however, credit scores and mortgage rates are not as sensitive as Conventional Loans. For example, a FHA borrower will not need a 740 FICO credit score to get the best FHA mortgage interest rates. A 680 FICO credit score will be sufficient in getting the best FHA mortgage interest rate. However, borrowers with under 640 FICO credit scores will get higher mortgage rates on FHA Loans even though FHA Loans are guaranteed by the federal government. Lower credit scores means higher risk borrowers. Higher risk borrowers are charged higher mortgage rates.

Things That Determine Mortgage Rates: Bad Credit And Prior Bankruptcy And Foreclosures

Most mortgage borrowers are under the assumption that bad credit and prior bankruptcies and foreclosures will have a negative impact on the mortgage rates they will get. This is not the case. Mortgage lenders only use the borrower’s credit scores to determine mortgage rates with the exception of Conventional Loans where the loan to value does have an impact. Prior bad credit such as outstanding unpaid collection accounts, prior late payments, prior judgments, prior charge offs, prior tax liens, prior bankruptcy, prior foreclosure, prior short sale, prior deed in lieu of foreclosure, and other prior derogatory credit issues have no impact on mortgage rates. Days where consumers get charged high interest rates due to having prior bad credit on home loans are long over and it is illegal. Again, prior bad credit has no bearing whatsoever on mortgage rates on mortgage loans. Credit scores is what determines mortgage rates as well as property types.

Things That Determine Mortgage Rates: Property Types And The Type Of Loan Program

The type of property you purchase and the type of loan program are things that determine mortgage rates. A single family home has lower mortgage rates than a condominium or two to four unit property because mortgage lenders feel that a single family home is less riskier investment than a condominium or a 2 to 4 unit property. The type of loan program are things that determine mortgage rates as well. Mortgage rates on a second home or investment home will be higher than those of a owner occupant primary residence mortgage loan.

FHA 203k Loans have higher mortgage rates than standard FHA Loans because mortgage lenders view FHA 203k Rehab Loans as riskier investments than standard FHA Loans. Jumbo mortgages have higher mortgage rates than standard conforming conventional loans because mortgage lenders view it as riskier investments than standard conventional loans. In the event if a Jumbo mortgage lender will foreclose on a Jumbo Loan, it will take much longer for the mortgage lender to sell and liquidate the higher end property than it would a regular standard home. The Jumbo home market is a niche market and not many folks can afford higher end homes and the lending standards of Jumbo mortgages are much tougher than Conventional or government loans.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

Comments are closed.