Market Update
Fannie Mae and Freddie Mac (the largest purchasers of conforming conventional loans) have come out with their latest changes, risk based pricing. We all would agree that it makes sense that the lower the credit score, the more interest would be charged, but they have changed what they consider a low credit score now. Prior to now, credit scores below 620 were subject to higher mortgage insurance rates and possibly sub prime rates, now the 620 floor has been raised to 680. This means borrowers with sub 680 credit scores will be subject to new rates on conforming conventional loans. This change will affect the entire real estate industry. Up until now, borrowers who qualified for a conventional loan were all basically given the same interest rate whether they had a 620 score or a 720 score. Now, borrowers with middle credit scores (below 680) will have rate "add-ons" based on their perceived risk. This change is effective immediately.
Credit Scores
Below 620: Add on of 2%
620-639: Add on of 1.75%
640-659: Add on of 1.25%
660-679: Add on of 0.75%
This change is not an add-on to the rate, but an add-on to the cost of the rate, just like discount points.
A typical conventional interest rate quote of 5.75% would now look like this:
Credit Scores New Interest Rate
Below 620: 6.750% to 7.000%
620-639: 6.500% to 6.750%
640-659: 6.250% to 6.500%
660-679: 6.000% to 6.250%
680 and up: 5.750% to 6.000%
Many borrowers will not be affected by this, and at the moment, these changes do not apply to government (FHA and VA), Bond, Jumbo and 15-year or less products. However, your transactions will be impacted. The bottom line is this: higher LTVs (loan-to-value ratios) and/or lower credit scores will cost your customers more money, therefore influencing affordability.
Allen Tate Mortgage is available to help you educate your clients about changes occurring in the market. Beginning next week, Allen Tate Realtors® will see these guidelines take affect when clients are pre-approved.
What do you need to do?
- Make sure clients have been recently pre-approved before you write the offer. This change in the industry may influence what your buyers can do or want to do.
- If you have buyers that were border-line before, urge them to update their pre-approval before you write the offer.
Please, please, please ask if you have any additional questions on how this can affect the borrower and your transactions.
Current rates-
30yr Fixed- 5.75%
15yr Fixed- 5.5%
5/1 Jumbo Interest Only-5.875%
3/1 Interest Only-5.625%
FHA and VA-5.875%
Brad Dinkel
Allen Tate Mortgage Services
704-634-2918 Direct
980-233-3909 Fax
"Focusing on Strategic Mortgage Planning and Wealth Advancement"
To get Pre-Qualified now, click the link below so that I can assist you as quickly as possible:
www.BradMortgage.com
