Applying for a mortgage? Do your fees and rates appear to be a little higher than what you see advertised? If yes, there could be several key factors driving up the cost of your mortgage that you may not know about. These additional mortgage pricing characteristics can make your mortgage cost more. Don’t be swayed by a lower-priced mortgage offer if your financial picture contains any of the key cost drivers…
Credit Score Importance
Most lenders have an impeccable credit threshold at 740 or above. If your middle credit score is under 740, even 739, you could be paying slightly more in terms of interest rate and/or associated costs with your new mortgage application. Your credit history may not support raising your score by virtue of opening up new credit or paying off debts, sometimes your best score is a byproduct of how you manage liabilities.
Little equity
This one is a biggie particularly in conventional mortgages, loans not insured by the Federal Housing Administration, US Department of Agriculture or US Department of Veterans Affairs. The cream of the crop conventional loans can become very pricey with less than 25% equity and a lower credit score, most particularly so in the circumstance of your score being sub 700.
Occupancy
If you are financing a property that is not your primary residence such as an income property/investment property expected pay more right out of the gate no matter what your loan to value or your credit score. It’s not uncommon to see as much is .375% higher in rate for income property loans.
Loan Size
Believe it are not, if you were to take a loan with great credit say 740 or above, on a primary home transaction with 25% equity with one loan amount at 160,000 and another loan amount at $200,000, the loan amount at $200,000 would be more competitively priced than the loan at $160,000. Contrary to popular belief, mortgage giants Fannie Mae and Freddie Mac have an appetite for bigger mortgages usually at 170,000 or more than they do for loans under $170,000 and as such, price these loans slightly more as the interest collected is below their servicing margins.
Cosigner
Freddie Mac loans are the only loans on the conventional side (non-government) that allow for the use of a cosigner to help a borrower qualify to buy more home. Freddie Mac loans inherently price their loans a bit more than Fannie Mae loans.
Time Frame Delays
Rate lock extensions, if not handled in a timely manner, can be strong driver of cost. Let’s say for example you lock your loan for 30 days in conjunction with a new mortgage application to purchase a home. The seller of the property takes longer in signing their appropriate paperwork, or a document needed for the lender cannot be obtained quickly, whatever the circumstance, if your loan goes longer than your lock clock, its costs.
Rate lock extension fees can be as much as .375% of the loan amount, using a $400,000 loan that’s an additional $1,500 for an extra 30 day period of time. Lock extensions typically can be for 15 days or 30 days, however much time is needed.
How The Loan Characters Drive Price
This scenario on a getting given day will always yield the best possible combination of rate and fees
Fico Score-740 Ideal barometer of credit lenders go by
LTV (Loan To Value) 70% More equity and/or down payment at 30% yields substantially reduced pricing adjustments to rate and fee
Occupancy- Primary Residence Owner occupied and second home transactions are the lowest cost mortgage types available. A second home is also classified as a vacation home
Loan Amount – $417,000 Loans up to the traditional conforming loan limit at 417,000 in most geographic areas are prime appetite for Fannie Mae & Freddie Mac
Lock Period- 30 Days Closing escrow within a month. Proactively, providing to the lender, any conditions they may need during the process quickly will keep your rate and fees low.
How To Reduce Your Rates & Fees
Ideally, the two biggest factors to pay attention to in reducing your rates and fees associated with your mortgage financing cash and credit. First, managing credit, a qualified mortgage professional with experience should be able to help you manage your liabilities in order to reduce your mortgage costs.
Perhaps, it might mean paying off in full or paying down credit cards or even opening up new credit. Secondly, cash is still king in lending as well as real estate. Paying down your principal balance or putting more money down when buying can easily shave off hundreds of thousands of dollars in unnecessary interest.
Mortgage tip:The question isn’t if you’re going to save when putting in more cash equity -the question is how much are you going to save, this is key.
Perhaps that might mean paying off debt, paying down debt or opening up new credit. A qualified mortgage professional with experience can certainly aid you in how to proactively manage your credit to improve your qualifying chances while reducing mortgage costs.
Need a mortgage loan? Have questions about how to get the best rates and terms possible? Start by getting a complementary mortgage rate quote for your loan today!
