My last blog entry discussed conventional mortgage loan pricing and how to determine what PAR pricing is. Without that information, how can you know that the 4.5% interest rate you are being offered is really a great rate. Now, I want to go over the other pricing issues with conventional mortgage loans. Real estate purchase and refinancing are subject to a number of different pricing issues. First time home buyers should pay special attention to the following information. This information is available to the home buyer if they ask for it, but most times they only want the bottom line.

In my last blog, I showed how the PAR rate was calculated but I didn’t go into the additions and subtractions that effect the final pricing. Most pricing are calculated by a combination of credit score (CS) and loan to value (LTV). So, let’s discuss how these work together. Every lender will have their own additions and adjustments, these are an example.

First, purchase of an owner occupied property:

1. 740 is the new standard for conventional loans.
2. Below 620 will probably not be accepted for conventional pricing.
3. 60% and below LTV gets the best pricing. There are no adds for under 60% for any credit score above 620 and actually subtractions for CS over 700.
4. Over 60% to 80% will go up in cost. For example, 640 CS at 80% will cost 2.25% in fee. Over 80% actually comes down in loan cost because of mortgage insurance protection.
5. 5. If the property is a 2-4 unit property, there is a cost of 1% fee.
6. 6. If it is a manufactured home (M/H), there is a 1.5% fee.

So, add all that applies and get the bottom line. Example, 650 credit score, 20% down, manufactured home is an addition of 2.25% for the CS/LTV and 1.5% for M/H or a total of 3.75%. Now, looking at Friday’s pricing, we have 4.875 at close to par (you never get exactly there) and 5.25 with a 1% rebate. So, the choice is paying a total of 4.75% in fee to get a 4.875%/5.361% APR rate or 3.75% in fee to get the 5.25%/5.660% APR rate. That is one of the reasons that FHA loans are often more cost effective for lower credit scores.

Now, if it is a cash out refinance, and that includes paying of a second mortgage as part of this loan, the cost goes up again. Even with a credit score of 740, there is a cost for a cash out refinance over 70% loan to value. Rate sheets are not for public dissemination but I am always willing to discuss what the rates are and the actual costs based on loan to value and credit score. If you are interested in finding the loan that is right for you, ask the right questions.

If it is an investment property, the additions are even more, from 1.75% to 3% depending on loan to value again, in addition to the other additions.

Calling someone on the phone and asking what the rate is won’t get you the information that you need to make a decision. As you can see, there are several things that are involved in finding out what your personal mortgage rate is. Oftentimes, first time home buyers are not aware of what goes into quoting a rate and will go with what they are told on the telephone. Anyone that quotes a mortgage rate on the telephone doesn’t have enough information to make that decision. Develop a relationship with your mortgage lender.

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