Your apparent risk as a borrower may dramatically affect the interest rate you have to pay. To a lender, there are three key risk components:
1. Credit rating - this is your personal history demonstrating your responsibility. The higher your score, the more trustworthiness you have demonstrated and are expected to continue to demonstrate.
2. LTV (loan-to-value) - this serves two purposes. First, by having a higher down payment (hence a lower LTV), the lender is more protected against market downturns. Second, the more skin in the game you have, the more likely you are to stick with it.
3. Loan Amount - that is not reflected in this charts. But you can see it in pricing between Conforming Loans (<= $417,000), High Balance Conforming (upper limit depends on your area), and Jumbo Loans, and even price points within Jumbo loans. You can also see it in the shorter term adjustable rate mortgages compared with the longer term fixed rate mortgages.
The following chart is taken from the updated Fannie Mae guidelines going into effect April 1, 2011 for all mortgages with greater than 15-year terms. Recent increases to this table can be found in the post Changes to loan pricing based on your FICO score may cost you more money .
| > 740 | -0.25% | 0.00% | 0.00% | 0.25% | 0.25% | 0.25% | 0.25% | 0.25% | N/A |
| 720 – 739 | -0.25% | 0.00% | 0.25% | 0.50% | 0.50% | 0.50% | 0.50% | 0.50% | N/A |
| 700 – 719 | -0.25% | 0.50% | 0.75% | 1.00% | 1.00% | 1.00% | 1.00% | 1.00% | N/A |
| 680 – 699 | 0.00% | 0.50% | 1.25% | 1.75% | 1.50% | 1.25% | 1.25% | 1.00% | N/A |
| 660 – 679 | 0.00% | 1.00% | 2.00% | 2.50% | 2.75% | 2.25% | 2.25% | 1.75% | N/A |
| 640 – 659 | 0.50% | 1.25% | 2.50% | 3.00% | 3.25% | 2.75% | 2.75% | 2.25% | N/A |
| 620 – 639 | 0.50% | 1.50% | 3.00% | 3.00% | 3.25% | 3.25% | 3.25% | 3.00% | N/A |
| < 620 (1) | 0.50% | 1.50% | 3.00% | 3.00% | 3.25% | 3.25% | 3.25% | 3.25% | N/A |
(1) A minimum required credit score of 620 applies to all mortgage loans delivered to Fannie Mae in accordance with the Selling Guide; exceptions to this requirement are limited to loans in which any borrower has nontraditional credit and those originated in accordance with Refi Plus™ or DU Refi Plus.
You can see that even with great credit, if you do not put down at least 25%, you are going to be hit with higher interest rates (or cost).
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