What Factors Affect Mortgage Rates

What Factors Affect Mortgage Rates

Gustan Cho Associates

What Factors Affect Mortgage Rates

National mortgage rates fluctuate up and down almost every minute of every day.  However, the par rates from the Federal Reserve Board is not the actual rate each individual mortgage loan borrower will get.  Mortgage rates have something called positive and negative adjustments to the par mortgage rates depending on each individual mortgage loan borrower.  Just because the national par 30 year fixed mortgage rate is 3.75% on a conventional loan does not mean that every conventional mortgage loan borrower will get the 3.75% mortgage rates.  The best qualified conventional mortgage loan borrower with perfect credit, good loan to value, no negative credit items, reserves, where a mortgage lender does not have to implement any negative price adjustments will get the par 3.75% mortgage rates.  Those with lower credit scores, high loan to value, higher debt to income ratios, will most likely get a negative price adjustment and their mortgage rates will definitely be higher.

Credit Scores And What Factors Affect Mortgage Rates

Credit scores have the biggest impact on mortgage rates, especially with conventional loans.  The lower your credit scores are, the higher your mortgage rates will be.  For example, if mortgage rates nationally is 3.75%, this mortgage rates will only be availble for mortgage loan borrowers with credit scores of 740 FICO or higher on a conventional loan.  Conventional loan programs are extremely credit score sensitive.  If your credit scores drops to 720 FICO, your mortgage rates may be 4.0%.  If your credit scores are at 700 FICO, your mortgage rates may be 4.25%.  If your credit scores fall between 680 FICO and 699 FICO, your mortgage rate may be 4.5%.  If your credit scores fall between 660 FICO and 679 FICO, your mortgage rates may be 4.75%.  If your credit scores fall between 640 FICO and 659 FICO, your credit scores may be 5.0%.  If your credit scores are 620 FICO and 639 FICO, your mortgage rates can be over 5.0% to 6.0% on a conventional loan.

FHA loans are not as credit score sensitive as conventional loans.  FHA mortgage rates are around 4.0% nationally.  If your credit scores are at 620 FICO or greater, the chances are that you will get the best FHA mortgage rates.  However, if your credit scores fall below 600 FICO, you may get FHA mortgage rates higher than 5.0% with some FHA mortgage lenders.

Cash-Out Refinance Mortgage Has Higher Mortgage Rates

Homeowners who want cash-out refinance mortgage loans will get a higher mortgage rate.  No matter which mortgage loan program you choose, almost all mortgage lender will charge between a 0.25% to 0.75% mortgage rate increase over the par rate to mortgage loans that have a cash-out feature.

Multiple-Units And 203k Loans Have Higher Mortgage Rates

Multiple-unit properties, 2 to 4 units, have higher mortgage rates than single family homes for all mortgage loan programs.  Both conventional, FHA, VA multiple unit property mortgage loans will normally have a 0.25% to 0.75% mortgage rate adjustment over par rates.  FHA 203k loan programs have higher mortgage rates.  Normally, a 0.50% rate increase adjustment will be charged on a FHA 203k loan.

Loan To Value Price Adjustment

To get the best mortgage rates, you need a loan to value of 75% LTV or lower.  Any loan to value higher than 75% LTV will get a mortgage rate price adjustment.

Risk Versus Rewards: What Factors Affect Mortgage Rates

The higher risk the mortgage loan borrower poses to the mortgage lender, the higher the mortgage rates.  Lower credit scores poses a great risk for the mortgage lender and that is why the mortgage lender will charge a higher mortgage rate than to a mortgage loan borrower with a higher credit score.  A borrower who has more skin in the game, larger down payment, minimizes the risk to the mortgage lender and a larger down payment is considered compensating factors and less risk on a mortgage lender so a borrower with a larger down payment will be charged a lower mortgage rate on their mortgage loan.  The lower the loan to value is, the lower the mortgage rate.

2 to 4 unit properties poses a greater risk for the mortgage lender than a single family home so mortgage lenders charge a higher rate for multi-unit properties.  Same with high end homes.  Mortgage rates for jumbo mortgages are higher than conventional mortgage rates and a larger down payment is required for jumbo mortgage loans.

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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.

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