Conforming loans (loans of $417,000 and below) are loans that very likely will ultimately be sold to Freddie Mac or Fannie Mae, so all of these loans are subject to the rate adjustments dictated by Fannie and Freddie. In addition, lenders have a lot of discretion in other adjustments to rates, based on the investor that will be buying those loans. The investor could be Bank of America, or Wells Fargo, but could also be a bank in Germany, for instance. The investors dictate rate adjustments, based on their risk tolerance. Since we've seen such a huge meltdown of lenders in the last few years, risk tolerance is very low.Following are some of the ways that rates can be adjusted, either up or down, based on your unique financial situation:
1. Credit score - which we've already discussed many times, is huge!! Some lenders will not even look at a loan with a credit score below 680, even though Fannie and Freddie will buy loans with scores as low as 620. Other lenders will give you a better rate if your score is above 740, or 760, or 800!
2. Location, location, location - yes, this matters even in terms of rates. There are "risk" tables for different areas, and then lenders can add on to these risk tables even more. So, some lenders look at "declining value" tables, where other lenders will break this out further into categories such as "declining values, distressed values, etc." Obviously the more categories, the more the rate can move depending on where you property is located. Please be aware that these tables are not based on neighborhood demographics, but rather are based on statistical data on what has been happening to the values since the housing market went into this slump. "Redlining" of neighborhoods is still illegal and is not a part of this process.
3. Equity - Technically Fannie and Freddie will lend to you if you have at least 10% equity in your home, but the amount of equity you have is also coupled with your credit score, the location, and the type of loan transaction. So, if you have 30% equity AND a 740 credit score, AND you are buying a house, AND your home is located in a good area, you will qualify for "best rates." But, adjustments can and will be applied based on any of the above factors. If you want to refinance your house mortgage with less than 25% equity, and you want cash back, you WILL pay a higher rate.
4. Type of property - is this a Single Family home, a condo, townhouse, condhotel? Is this a property you intend to, or are currently occupying? Is this a vacation home (2nd home), an investment property? Is the condo in a high rise building (4 stories or more)? If a condo, is it a new building or one that has been deemed Fannie/Freddie "warrantable"? Is it FHA approved? Believe it or not, all these factors can and will affect, not only your rate, but if in fact this property qualifies for financing at any price.
5. Lock period - This has become huge since HVCC went into effect on May 1st. The standard used to be 30 days, which was the average time it took to go from loan application to closing that loan. With HVCC, the time is still an unknown. AND, when rates are very low, as they were just a month ago, lenders got so backed up with applications that it was not unusual for a file to sit at a lenders office for 30 days before anyone even looked at it. Most lenders are now encouraging us to lock for at least 45 days in order to ensure that the appraisal will be ordered, received, and reviewed, if necessary, and still get that loan closed in time. BUT, a 45 day lock costs more than a 30 day lock, so the rate could increase. For myself, I'm not locking any loans until an appraisal has been received and reviewed. This can save on the rate, but can also cost on the rate during these times of volatile rates. It's a juggling game, and is making lending much more difficult. (Just one more reason to repeal HVCC!!) If we are still in the iffy appraisal process and rates take a huge drop, I will notify you and allow you to make the final call on when to lock your loan. However, there are lenders out there that will not even look at your loan file until it is locked! If we can wait to lock your loan until it is completely approved, including the appraisal, and get a short term lock (7-15 days), you often will get a better rate.
6. Loan amount - A conforming loan is $417,000. This year we are seeing that ceiling raised in some areas where housing prices run higher, such as San Francisco, or New York City. However, these are called "high limit conforming loans" and are still subject to slightly higher rates. Once your loan amount exceeds the conforming, or high limit conforming amounts, you move into "jumbo loan" territory. The upward rates adjustments for jumbo loans are big. All the other potential adjustments mentioned above are added to this one.
Wow - I hope this cleared up some questions many of you have asked, and didn't confuse you more. And, I also hope that you now understand that when you call and ask "what's the rate today?" I will need to ask a lot of questions before I can answer you. Even then, until we get all the information confirmed through credit pulls, appraisals, etc, the best I can do is make a "best guess" based on what you tell me, and what rates are being quoted at that moment. Thankfully, I have a lot of experience in this industry, and know what questions to ask. But guidelines are still changing all the time.
We're all looking forward to a stabilization of the housing market, so some of these "ifs" will disappear, and lending guidelines will hopefully loosen a bit. None of us expect lending guidelines to ease to the point they were 2 years ago. If you do not have good credit, you need to fix it, or expect to pay higher rates. If you need help fixing your credit, please feel free to call or email me. But, please don't spend money at a credit repair company. They rarely do all they say they can, and your association with this company is one more factor that can cause your rate to increase. I can guide you through the process, but you will have to do most of the work on your own.
As regards credit repairs: remember that if your credit report shows you were 30 days late on a credit card payment, and you truly were 30 days late, it is very unlikely that the creditor will remove that report. Repairs apply to errors on your report. Errors can cost you hugely in terms of points lost on your score, but once removed, your score should revert to where it was prior to the error reporting.
I urge you all to sign up with some type of ID theft protection, or some credit monitoring agency. Most banks now offer this service. This service will typically report to you whenever there is any activity on your credit report, such as new debt being posted, inquiries from creditors, and late payments being reported. In addition, most of these agencies will also send you a copy of your credit report from at least one bureau either monthly or quarterly. Be sure, if you sign up with some agency that you are able to see all three bureaus AND your scores. This is important information for you to have.
As always, I am available to assist most of the time, so please feel free to call or email me, or visit my website for more information.
1. Credit score - which we've already discussed many times, is huge!! Some lenders will not even look at a loan with a credit score below 680, even though Fannie and Freddie will buy loans with scores as low as 620. Other lenders will give you a better rate if your score is above 740, or 760, or 800!
2. Location, location, location - yes, this matters even in terms of rates. There are "risk" tables for different areas, and then lenders can add on to these risk tables even more. So, some lenders look at "declining value" tables, where other lenders will break this out further into categories such as "declining values, distressed values, etc." Obviously the more categories, the more the rate can move depending on where you property is located. Please be aware that these tables are not based on neighborhood demographics, but rather are based on statistical data on what has been happening to the values since the housing market went into this slump. "Redlining" of neighborhoods is still illegal and is not a part of this process.
3. Equity - Technically Fannie and Freddie will lend to you if you have at least 10% equity in your home, but the amount of equity you have is also coupled with your credit score, the location, and the type of loan transaction. So, if you have 30% equity AND a 740 credit score, AND you are buying a house, AND your home is located in a good area, you will qualify for "best rates." But, adjustments can and will be applied based on any of the above factors. If you want to refinance your house mortgage with less than 25% equity, and you want cash back, you WILL pay a higher rate.
4. Type of property - is this a Single Family home, a condo, townhouse, condhotel? Is this a property you intend to, or are currently occupying? Is this a vacation home (2nd home), an investment property? Is the condo in a high rise building (4 stories or more)? If a condo, is it a new building or one that has been deemed Fannie/Freddie "warrantable"? Is it FHA approved? Believe it or not, all these factors can and will affect, not only your rate, but if in fact this property qualifies for financing at any price.
5. Lock period - This has become huge since HVCC went into effect on May 1st. The standard used to be 30 days, which was the average time it took to go from loan application to closing that loan. With HVCC, the time is still an unknown. AND, when rates are very low, as they were just a month ago, lenders got so backed up with applications that it was not unusual for a file to sit at a lenders office for 30 days before anyone even looked at it. Most lenders are now encouraging us to lock for at least 45 days in order to ensure that the appraisal will be ordered, received, and reviewed, if necessary, and still get that loan closed in time. BUT, a 45 day lock costs more than a 30 day lock, so the rate could increase. For myself, I'm not locking any loans until an appraisal has been received and reviewed. This can save on the rate, but can also cost on the rate during these times of volatile rates. It's a juggling game, and is making lending much more difficult. (Just one more reason to repeal HVCC!!) If we are still in the iffy appraisal process and rates take a huge drop, I will notify you and allow you to make the final call on when to lock your loan. However, there are lenders out there that will not even look at your loan file until it is locked! If we can wait to lock your loan until it is completely approved, including the appraisal, and get a short term lock (7-15 days), you often will get a better rate.
6. Loan amount - A conforming loan is $417,000. This year we are seeing that ceiling raised in some areas where housing prices run higher, such as San Francisco, or New York City. However, these are called "high limit conforming loans" and are still subject to slightly higher rates. Once your loan amount exceeds the conforming, or high limit conforming amounts, you move into "jumbo loan" territory. The upward rates adjustments for jumbo loans are big. All the other potential adjustments mentioned above are added to this one.
Wow - I hope this cleared up some questions many of you have asked, and didn't confuse you more. And, I also hope that you now understand that when you call and ask "what's the rate today?" I will need to ask a lot of questions before I can answer you. Even then, until we get all the information confirmed through credit pulls, appraisals, etc, the best I can do is make a "best guess" based on what you tell me, and what rates are being quoted at that moment. Thankfully, I have a lot of experience in this industry, and know what questions to ask. But guidelines are still changing all the time.
We're all looking forward to a stabilization of the housing market, so some of these "ifs" will disappear, and lending guidelines will hopefully loosen a bit. None of us expect lending guidelines to ease to the point they were 2 years ago. If you do not have good credit, you need to fix it, or expect to pay higher rates. If you need help fixing your credit, please feel free to call or email me. But, please don't spend money at a credit repair company. They rarely do all they say they can, and your association with this company is one more factor that can cause your rate to increase. I can guide you through the process, but you will have to do most of the work on your own.
As regards credit repairs: remember that if your credit report shows you were 30 days late on a credit card payment, and you truly were 30 days late, it is very unlikely that the creditor will remove that report. Repairs apply to errors on your report. Errors can cost you hugely in terms of points lost on your score, but once removed, your score should revert to where it was prior to the error reporting.
I urge you all to sign up with some type of ID theft protection, or some credit monitoring agency. Most banks now offer this service. This service will typically report to you whenever there is any activity on your credit report, such as new debt being posted, inquiries from creditors, and late payments being reported. In addition, most of these agencies will also send you a copy of your credit report from at least one bureau either monthly or quarterly. Be sure, if you sign up with some agency that you are able to see all three bureaus AND your scores. This is important information for you to have.
As always, I am available to assist most of the time, so please feel free to call or email me, or visit my website for more information.
Best regards,
Shelby Bateson
Shelby Bateson
503-819-6545
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