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When Applying for Your Mortgage, It’s “FATE and RATE”

Posted by Jane Peters on February 12, 2019
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Gene Mundt, Chicago Mortgage Originator is always a mine of information re the mortgage industry. Here is information on the importance of maintaining a good credit score.

Maintaining a good credit score

Most of the loan applicants I work with come to me already aware of the fact that their credit scores and credit history contribute to and affect the interest rate quote they will receive upon application for a mortgage …

They also know that credit and credit scores can determine if they can be approved for financing when they buy or refinance a home.

But beyond that, what they know of the actual contribution of the two to the “fate and rate” of their loan is typically pretty limited.

That’s understandable … 

Admittedly, there are many moving parts and asterisks that must be considered by Lenders along the path to quoting rates and awarding loan approval.
Here’s just one sample of that being true …
Some types of mortgage loans regard credit scores a bit more leniently than others.  At a minimum, most showcase some degree of sensitivity to “levels” of credit scores.
What I mean by this …
Government-backed loans such as: 

are examples of those types of loans that are NOT as sensitive to credit score levels as say … Conventional Loans.  As always, there are pros and cons to consider prior to using any type of loan, and that remains true with these loans offering more credit leniency.

Also … 
The mortgage fees may be a bit higher for borrowers utilizing these loans.  Plus  Private Mortgage Insurance (in one form or another) will be required as well.

The advantage of choosing one of these loans for your home financing is …

Because these loans have guidelines that are a bit more “forgiving” and lenient, many hopeful home buyers find themselves able to buy and finance a home more easily (or sooner) than they previously thought possible.  With housing prices currently on the rise and saving money for a down payment remaining a challenge, these types of loans can also serve as a huge advantage for some home buyers … especially first-time buyers.

But still, it’s a fact:  Credit scores remain, to one extent or another, important in determining a borrower’s “fate and rate” when they apply for a home loan.
In other words, the interest rate received AND the ultimate success or failure of a mortgage approval rest upon (along with other criteria) credit scores.
Here are some examples of that being true: 
  • MOST Conventional Loan Programs have a “minimum” credit score.  You must have that minimum score (or better) to even have a chance to qualify for mortgage approval
  • MOST Conventional Loan Programs have “stepped” pricing tied to incremental differences in credit scores.

 A.  That means anyone with a lower credit score pays a higher interest rate.  Conversely, those with a higher credit score earn a lower interest rate.

       B.  Borrowers with a lower credit score can also choose to pay “points” (added costs) to achieve the same interest rate that a borrower with higher credit score might earn (without having to pay “points”)
       C.  MOST Conventional Loan Programs have varying interest rates for every 20 points in credit score levels
  • MOST Lenders use the “middle” score of the 3 major Credit Bureau scores pulled for a Residential Mortgage Request.  (Each Credit Bureau provides one credit score)
  • When placing LESS than a 20% down payment on a home, MOST Private Mortgage Insurance Companies charge borrowers differently … and that charge is reliant on credit scores and credit score variances in categories of20 point increments (in MOST cases)

Note that pesky word “MOST”?  I refer you back to the moving parts and asterisks I spoke about above.  Exceptions to the rule do exist.

There are many factors that enter into the interest rate earned and the monthly mortgage payments you’ll make.  These factors are also the basis for many other things such as the Closing Costs you pay, the loan program you qualify for, which loan program will serve your needs best … and yes, even if you receive mortgage approval.

It’s important to remember:
  1. These “factors” are personal to you and you alone
  2. No comparisons of your loan, interest rate, etc. can or should be made between you and anyone else
  3. Your personal factors, over time, can change or be changed
And that’s very positive news.  Why? 
If the “fate and rate” you received or thought you would qualify for in the past was not a positive one … you can have faith that with time and improvements made you can positively change the “fate and rate” you receive in the future.
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