Not Just Rate, Closing Costs Too
Conforming mortgage rates may be posting all-time lows this week, but that doesn’t mean you’ll be eligible for them. You may have already called your loan officer and found this out the hard way. Please let me help you see why.
It’s because of a federally mandated mortgage-pricing scheme known as “loan-level pricing adjustments”.
In effect since April 2009, loan-level pricing adjustments are changes to a loan’s base rate and/or fee structure based on that loan’s risk to Wall Street. It’s similar to auto insurance pricing adjustment in that a sports car, all things equal, will cost more to insure than a comparably-priced minivan.
More risk, more cost. Make sense?
So, What is Considered Risk?
- Credit Score (i.e. the borrower’s FICO is below 740). Yes, seriously. It starts at 740.
- Property Type (i.e. the subject property is a multi-unit home)
- Occupancy (i.e. the subject property is an investment home)
- Structure (i.e. there is a subordinate/junior lien on title)
- Equity (i.e. mortgage insurance is required by the lender)
On top of that, loan-level pricing adjustments are cumulative.
A 3-unit investment home will face larger adjustments than an owner-occupied 3-unit home, for example. It’s these adjustments that explain why you may not be eligible for the rates you see advertised online and in the newspapers. Your particular loan may be subject to this risk-based pricing that raises your mortgage rate and closing costs. So it’s really important to get a custom rate quote from lenders. Not just a “best case scenario”.
The government’s loan-level pricing adjustment schedule is public information. See what your lender and how your loan quote is made at the Fannie Mae website. Or, if you find the charts confusing, just call or email me. I do this stuff every day and I’d be happy to help you get things going. All of my contact information is off to the right hand side of this article.
