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From year 2013, mortgage rate have been holding almost history lows which boosted the amount of home that home buyers can purchase. This also increased the available monthly savings through a home loan refinance. The rates, historically speaking, are very cheap.
But, most mortgage borrowers learned it the hard way that not all could get their hands on ultra-low rates. For a borrower with a conventional loan, the ability of gaining access to the best mortgage rates has a direct correlation with their credit score.
Your mortgage rate will be lower if you have a higher credit score. This is not really news. Online ads which promise credit score repairs tout the connection between mortgage rate and credit score liberally.
But, did you know that when you have low credit scores, essential loan programs might become cost-ineffective or unavailable, particularly for someone who wants to use a low down payment mortgage?
If you are a borrower, you need to have high credit scores for you to gain access to more potential solutions..
Prime Mortgage Borrowers are Entitled to Prime Mortgage Rates
There is no need to delve deeper in the papers or online to see the current mortgage rates as these are advertised anywhere you look. However, what is not clear is to whom such mortgage rates are really available. Sadly, these are not for everyone.
Generally speaking, mortgage rates shown in ads are geared for prime mortgage borrowers who use conventional mortgage financing. A prime mortgage borrower is one who has ample assets and income and high credit scores to support the home loan approval.
A prime mortgage borrower can also make a 20 percent down payment or more on the purchase of a single unit house, with the property established as the primary residence.
Due to this definition, most mortgage applications cannot be considered prime borrowers, which include borrowers who use FHA loans with 3.5 percent down as well as VA loans with 100 percent financing. These could also include great borrowers who want to opt for mortgage refinance.
At times, there is a stark interest rate differential which registers 1 percentage point or more.
Difference Between 740 and 680 FICO Score
Rates of conventional loan mortgage vary a lot which depends on the credit score of the borrower. A prime borrower is one with 740 FICO score, who will be getting a mortgage rate of around 3.75 percent with 0 points. Similarly, the APR quote is low as well.
On the other hand, the other borrower with 680 FICO Score can be quoted with 4.25 percent rate with 0 points. And, despite being low in context of history, this higher rate will reflect the augmented risk of the bank.
Whether you like it or not, your FICO score will determine how easy or difficult it will be for you to pay your mortgage. Thus, when you have a 680 FICO score, you should try whatever there is to improve it and turn yourself into a prime borrower entitled to a prime mortgage rate.
Posted by Randy Blakeslee
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