I think there should be some clarity about what contributes to the figuring of interest rates.

First, let me say that no two situations are alike. Now, down to brass tacks.

Assumption: I have a 740 credit score, I should have the best rate!

Truth: Perhaps. But, your credit score is just what is used to figure your BASE, or starting interest rate. Then there are adjustments that are added depending on your situation as follows:

Additions (Hits)

Documentation

Anything other than Full Documentation will incur a "hit" or an addition to the rate. Listed below are the most common forms of documentation in order from least to greatest of the hit. Different levels of documentation are needed for different situations. Either because of irregular income, self-employed, or just for convenience.

SIVA (Stated Income Verified Assets) - Income is stated and not verified as long as it seems plausible for that line of work. You cannot say you are a janitor making $90k. Its not plausible.

No Ratio - This is the same as SIVA except you do not state ANY income at all.

SISA (Stated Income Stated Assets) - This is the same as SIVA, but, it will cost you a bit more on the rate and you need a higher score to qualify for it. The assets, or reserves, are stated, but, not verified by bank statement or deposit verification.

NINA (No Income No Assets) - No income or assets are stated or verified. Verification of Employment is still needed.

No Doc (No Documentation) - This type of documentation requires NO documentation. Usually, you will need a 740 or better credit score to qualify for this AND only in certain programs. For this priviledge you will take the biggest hit to your interest rate.

Loan Size

Usually a loan that is below $80,000 or above $650,000 will incur some addition to the rate.

LTV/CLTV

Loan to value is also factored into the equation as an add on. If you are only getting one loan then LTV applies. if you have a combination of loans Combined Loan To Value, or CLTV, applies as well. These two factors could add on to your rate if you are above 80% or you could get a lower rate if youare below 70%.

Occupancy

There is a rate difference for Primary Residence, 2nd Home, or Investment Properties.

Amortization

30 year is standard. 40 years will take a hit. Also, you will take a hit for Interest Only loans.

Escrow

If the borrower chooses to not escrow taxes and insurance, this will also incur a hit.

Subtraction (Bumps)

Loan Size

Usually, if your loan falls into the $200,000 to $650,000 range, you can get a bump of as much as .375 off your rate.

Prepay

This is a touchy subject, but, prepays are not ALL bad. Yes there is a penalty if you take it, but, it also can reduce your rate by as much as 1-1.5 points. What needs to be looked at is what is best for your situation. You need to understand what the prepay penalty actually is. Some are only 2 months interest. That is not alot when you think about the difference in mortgage payments over a 1 year period when you are looking at a 1.5% increase in your rate. A good example...If you have a great rate and have either a 5-year ARM, 10-year ARM, or a fixed loan and a 3-year prepay, you would be crazy not to take the prepay. If you plan on keeping your house and not refinancing for the next three years, you would be throwing away money to not take it. Actually, after about a year or a year and a half, you could have saved much more than the penalty itself. Consult a mortgage professional you trust about this.

LTV/CLTV

If you have a LTV or CLTV less than 70%, you can usually get a bump of up to .375 off of your rate.

Programs

Different programs start at different rates with different margins and/or indexes. There are alot of different guidelines to specific programs.

This brings us full circle back to the fact that no two situations are exactly the same. You have to think of a mortgage the same as an insurance policy. There are certain factors that add to the risk of the loan. The more risk factors you have, the more hits you will incur, and the higher your interest rate can possibly be.

If there are any questions or comments, I am open to hearing them. I especially would like to see feedback from real estate professionals. I think the more we understand about each other (lenders and real estate), the better we can work hand in hand without suspicion and reservation.