As much as some things change, the more they remain the same. I keep hearing banks have tighten the available funds for mortgages, and that interest rates are impacted by credit scores. I have been hearing these statement for a long time, and it concerns me, because they are being made by those in Real Estate Industry sho are not familiar with the Lending side of the industry. They have an understanding of their area of the Real Estate Industry, but do not have a good understanding of the Lending side of the Industry. These statements are concerning, because those who they are made to, trust what is being said is fact. After all they are being made by someone who is precived as a Real Estate expert. However, even though they may be an expert in their area of the Real Estate Industry, they have little understanding of the Lending side of the Industry, and fail to Stick To The Facts.
Lenders make money by making loans, not by restricting funds for loans. There is plenty of available funds for loans, but what has tightened is the guidelines to qualify for those funds. However, even though there is plenty of money available for mortgages, there are many Borrowers who cannot qualify for a mortgage. This takes us to the second incorrect statement, which is the one I really want to talk about, credit scores and interest rates.
Credit scores impact a Borrower's ability to qualifying for a Loan Program, and the points a Borrower may pay once they qualify for the Loan Program, BUT they do not impact what the Interest Rate will be within the same loan program. For example, if a Borrower needs a minimum credit score of 640 to qualify for a Loan Program, it does not matter if their credit score is 640 or 800. Once the Borrower qualifies for the Loan Program the Interest Rate will be the same regardless of the credit score. What is impacted by the credit score is the points a Borrower will pay.
Fannie Mae is very credit score sensitive, and the points a Borrower will pay will depend on the credit score. For example if a Borrower qualifies for a conventional mortgage backed by Fannie Mae they will have the same interest rate regardless of their credit score. However, Fannie Mae will assess points based on the credit score. So if a Borrower qualifies for a mortgage and has a 20% down payment, Fannie Mae will hit them with the following points based on their credit score:
- 740+ .500 points
- 739-720 .750 points
- 719-700 1.250 points
- 699-680 1.750 points
- 679-660 3.000 points
- 659-640 3.250 points
- 640-620 3.250 points
As you can see every time the credit score drops by 20 points. the points Fannie Mae charges go up. The Interest Rate stays the same as long as the credit scores stays within the Loan Program qualifying limits. However, as the credit scores drops the Borrower's closing cost and out of pocket money goes up. This in turn impacts the Borrower's ability to qualify for a mortgage if they do not have enough money for closing costs.
There is enough miss information out there. We do not need more miss information which is far from the truth. People need to Stick To The Facts by taking the time to learn what they are passing on to others. This should be the standard especially for those who are in the Real Estate Industry. Before stating information they are not familiar with, they need to take the time to learn what the facts are, or better yet put them in touch with someone who knows the facts.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org