Bill Chenier with iMortgage explains the mystery behind rate variations between borrowers . . .

I'm often asked why a rate is higher than the rates published in the news or various advertising.  It's a good question and the short answer is that the rates you may read online or in publications are simply teaser rates and not the actual rate available to a particular borrower.

Information in news articles and rates posted on the internet can be very misleading because they rarely disclose the cost associated with the rate.

In 2008 Fannie and Freddie instituted risk based pricing and increased their loan level pricing (explanation below), which can have a big effect on a rate. I can safely assume that a so called "average" rate is actually the best financing available to highest FICO tier borrowers who are paying a 1% origination fee.

Risk Based pricing takes into an account 2 factors:

LTV  (loan to value): That is the percentage of down payment the borrower is paying. The rate for someone putting 20% down is much lower than 5% down.

Credit score: The credit score tiers are as follows:

Over 740 

720 to 739

700 to 719

680 to 699

660 to 679

640 to 659

620 to 639

Each tier has a hit to the rate and the rate may rise dramatically as the credit score drops.

Example:

Borrower A purchasing with a 740 score and 20% down would get the very best rate.

Borrower B with a 660 score and 10% down would borrow at a rate as much as .5% higher.

Loan Level pricing:

Each one of these 3 factors will have an effect on the rate:

• Type of loan: Purchase, refinance or cash out refinance 
• Occupancy: Primary Residence, Second home or Investment
• Loan Amount: Loans under $100,000

The rate on a LSR (Loan Status Report) is not a rate quote but instead it is a protection for the Borrower. As it states on the LSR: Interest Rate not to exceed ____. This gives the borrower protection from a change in rates between the time they make their offer to the time they have the opportunity to lock their loan.

You can reach Bill Chenier at 480.907.6745