Often when I provide clients with rate quotes for refinances, they are astonished that my rates are completely different from what they see on the internet (lendingtree for example). So I just want to take a few minutes/words to explain all the elements that affect the rate that you’re eligible for. The one thing I want to clear up before I begin is that I work for a broker and my particular company has access to 20+ wholesale lenders (large moneylines). Each lender has their own rules and guidelines and will require different scores, ratios, etc for different tiers of borrowers. If you’re refinancing through a bank, it’s their money and they measure risk and determine loan variables differently. So, with that said, let’s go through the pricing adjustors for a regular 30yr fixed conventional loan (we’ll do an FHA/USDA some other day). Lets start out with a 5% rate and adjust as we go for a $200k loan on a home valued at $300k.1. Loan Amount – The bad news, the size of the loan you have or that you’re looking to get, will affect your rate. The good news, you really only get hit for loans under $90k. ”Good you say?” Well yeah, even some of the lower priced townhomes in the greater Raleigh area are right at $99k. A lender may have a negative pricing adjustment of .25 or .5 for loans less than $90k, but since our example for a $200k loan, we’re out of harm’s way – our rate is still at 5%. If we were under $90k, we’d be at 5.5% now.
2. FICO & LTV - Next, a duo of price adjustors working together to hedge risk for the lender. Lenders adjust on a sliding scale, more adjustments for higher LTV and lower FICO, and vice-versa. Nowadays, any score under 720 gets a pricing hit – which stinks I know but banks are stricter these days. The LTV is simply your loan to value or your loan/value – which in our case is 200/300 or 66.7%. Let’s say we only have a 700 FICO and with our LTV at 66.7%, we’d most likely be looking at a .5% hit – moving our rate up to 5.5%.
3. Property Type - There are pricing adjustments for different property types, mainly condos and 2+ unit buildings. These hits range from .5% to a whole 1%. Since we’re refinancing a single family home, there won’t be any adjustment – we’re still at 5.5%.
4. Cash-Out -Looking to take out a few thousand in cash at closing? This will definitely affect your rate. The cash-out pricing adjustments are also based on the LTV and FICO scores. If you’re over 60% LTV with anything less than a 700 FICO, you can expect a .5 or greater hit for taking cash out (taking us to a 6% rate). In our example, we’re not looking to take any cash out and thus our rate remains the same.
5. Second Mortgages – If you’ve got a second mortgage that you want to leave be either because of the rate or just as a preference, there will be an adjustment on pricing (usually .25-.75%). This is super dependent on the lender and it’s hard to make any general statements about this adjuster. If we had a second, we may be looking at a 6% or 6.25% rate.
These are the basic price adjustors that you’ll most likely run into; there are separate and additional rules for FHA and USDA loans as well as adjustable rate products. So jeeze you say, that darn FICO score hurt my rate a .5% – I wish there was something I could do to get that 5% rate. Well there most definitely is – have you ever heard of buying down a rate? That’s exactly what you can do. If you’ve got the extra cash and are looking to stay in your home for a long period of time, you can put some extra money into the transaction and your mortgage professional can move you into a lower rate. I’ll post later on this week about buy-downs – but considering a $200k loan at 5.5%- if you buy the rate down .5%, you’ll be saving close to $21k in interest over the life of the loan. Feel that that’s worth the approx $1k that it would cost? – A lot of people would agree.
All these examples were general estimates that assume many elements of the transaction – like I said at the beginning of the post, every lender and bank have completely different rules and adjusters, all % examples were just basic guestimates to give you a general idea of how your specific rate estimate was calculated.
Want your own rate quote? Just visit our website – no obligation or cost. http://www.integritylender.com/raterequest
As with any of my blog posts, if you’ve got questions, I can help. (919)459.6533
DNJ Mortgage
1350 Sunday Drive
Raleigh, NC 27607
919.459.6560
www.integritylender.com
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