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Credit Scores Affect Mortgage Rates A LOT!

Credit Scores Affect Mortgage Rates A LOT!

Agent Was Furious Because Her Client’s Interest Rate Was Too High!

We recently had an agent scream at us (yes, scream) because of the rate we quoted to her client.

Our rates of course are notoriously low and we also are not allowed to quote different rates to different clients.

So, sadly, the only thing that spawned the anger of that agent was her misunderstanding of how much credit scores affect interest rates.

As I remind readers often in this blog, there is “no one interest rate for every borrower” because there are so many factors that influence every borrower’s rate.

13 Factors That Impact Your Mortgage Rate

Because this message is important (to avoid the exact type of frustration exhibited by the agent above), we frequently reference and re-post this blog: 13 Factors That Impact Your Mortgage Rate.

One of the biggest factors of course is your CREDIT SCORE!

And the borrower I mentioned above had a lower credit score – and that is the sole reason his rate was relatively high.

Examples Of How Credit Impacts Interest Rates:

In light of this, one of our team members prepared the below table to illustrate just how much credit scores can impact interest rates.

She used a $500,000 conforming loan and $1 million jumbo loan for her illustration, and she assumed the loans were 80% loan-to-value (20% down) purchase money financing – with “no points or origination fees.”

NOTE: The rates quoted below are based on last week’s interest rate environment (and may not be accurate today or at the time this blog is read); they are provided only to illustrate the “spread” between rates for borrowers with different credit scores – when all other factors are equal.

POINT: For jumbo, the “spread” between a 640 FICO and an 800 FICO is almost 3%! For conforming, the “spread” for 640 vs. 740 is 3/4%!

Note that conforming loans only reward FICOs up to 740; there is no advantage for being significantly over 740 – like there is with jumbo financing.

Examples Of How Credit Impacts Interest Rates:

Credit Score:640680740800
$500,0004.125%3.750%3.375%3.375%
$1,000,0005.375%3.625%3.125%2.625%

Huge Catastrophe I Missed!

Recently, I blogged about all of the insanely wrong predictions of catastrophes over the last 50 years, and an agent reminded me of a huge one that I left out: Y2K!

Also, known as the “The Year 2000 Problem,” it refers to potential computer errors resulting from the storage of dates in two-digit formats (last two digits of the year, e.g. 98 vs. 1998) – making the year 2000 indistinguishable from 1900, for example.

Millions of people thought this glitch would crash computers all over the world and bring civilization to a standstill.

Worse, thousands of fringe religious and cult groups were convinced that Y2K was a harbinger of the “end of times,” convincing many people to sell everything to prepare for the worst.

Anyway – we survived that “catastrophe” too – without so much of a wrinkle….

 

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167

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