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When applying for a mortgage loan, there are some things you should do BEFORE beginning the application. The single most important thing for you to do is to look at your credit score(s), preferably, all three. The three repositories that are utilized to determine whether or not a borrower qualifies for a mortgage are Experian, Equifax, and Trans-Union. Mortgage lenders use the middle or median FICO score. There are many banks, credit card companies, and credit unions that will keep track of your credit for possible fraud, like someone trying to obtain credit in your name, but, more importantly, provide you with the scores.
If there are problems with your credit report, it is better if you address these issues before applying for the mortgage. Every time an inquiry is made into your credit report, your scores could drop by 5-8 points. Over the next 12 months after the inquiry is made, the score should level off, unless you have had multiple inquiries. The system is set so that if you apply to multiple mortgage companies, the drop only occurs once. If you apply for an auto loan, a mortgage, and a credit card, all three inquiries could cause a 15-24 point drop, and consequently a possible you would have to qualify for a higher mortgage rate.
Keep in mind, for every 20 point drop to your FICO score, you can expect a .2% increase in the mortgage rate. That is why it is so critical that you do not have multiple hard inquiries run on your credit file, especially while your mortgage loan is in processing or underwriting. The loan officer will do a hard inquiry into your credit, then the processor will run another inquiry, and finally, the underwriter will run a final inquiry right before you close. The best advice I can give you is to listen to your loan officer, processor, and underwriter so your closing on your new home or refinancing your new one is as smooth a process as follows. Over the life of a loan with a higher mortgage rate, you could lose tens of thousands of dollars in interest payments. So, it is well worth your time and effort to improve your finances and credit scores.
Once you have looked into 7th Level Mortgage for financing your home and have worked with one of their professional loan officers, the company will guide you through the process. The loan officer will guide you through correcting errors, getting charge offs paid off and late payments caught up, he will custom tailor your loan to so you can lock into the best rate and program for you.
Loan Level Pricing Adjustments
Loan level pricing adjustments occur at certain LTV’s, FICO scores, and DTI’s. The formula to use is the higher the LTV, the lower the credit grade score and higher the DTI, the higher the rate and vice versa. What follows is a chart that will help you figure (approximately) the range of rates you may qualify for.
Loan-level price adjustments by credit score | ||||||||
| Credit score range | LTV less than 60% | LTV 60.01% – 70% | LTV 70.01% – 75% | LTV 75.01% – 80% | LTV 80.01% – 85% | LTV 85.01% – 90% | LTV 90.01% – 95% | LTV 95.01% – 97% |
| Greater than 740 | -0.25 | 0 | 0 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 |
| 720-739 | -0.25 | 0 | 0.25 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 |
| 700-719 | -0.25 | 0.50 | 0.75 | 1 | 1 | 1 | 1 | 1 |
| 680-699 | 0 | 0.50 | 1.25 | 1.75 | 1.50 | 1.25 | 1.25 | 1 |
| 660-679 | 0 | 1 | 2 | 2.50 | 2.75 | 2.25 | 2.25 | 1.75 |
| 640-659 | 0.50 | 1.25 | 2.50 | 3 | 3.25 | 2.75 | 2.75 | 2.25 |
| 620-639 | 0.50 | 1.50 | 3 | 3 | 3.25 | 3.25 | 3.25 | 3 |
| Less than 620 | 0.50 | 1.50 | 3 | 3 | 3.25 | 3.25 | 3.25 | 3.25 |
Simply put, higher credit grade scores and lower LTV’s certain adjustments to rates that afford the borrower a lower rate. The reverse is also true; lower credit grade scores and higher LTV’s afford the borrower a higher rate. The reason for these adjustments is always based on risk. The professionals at 7th Level Mortgage can explain why there were adjustments made to your rate and how, if possible, to bring your rate down. There are a variety of ways to mitigate a higher rate because your credit score is lower than what the lender would offer.
The best way to bring your rate down is to pay points. If your credit grade score is 700 and your LTV is 75.01% your 30-year rate would be 4.07%. Were you to pay 1 point upfront, your interest rate would drop down to 3.07% because you prepaid the interest to keep your payment down. This would help keep your DTI’s in line. To compare, if your credit score is 720, the loan-level price adjustment would be ½ instead of 1 point. That is why it is critical to keep your credit in good order. Responsible use of available credit as well as making timely payments on your credit lines will yield for you better rates, and lower debt to income ratios.
Another way to avoid loan-level price adjustments is to opt for a 15-year mortgage instead of a 30-year term. Please keep in mind that all mortgage companies adjust rates based on risk. When the mortgage company has a lot of loans in their portfolios that are 30 years as opposed to 15 years, the rate of default is higher. It is extremely expensive for an end lender to have to foreclose on a property and history has shown that people who are willing to pay more for a 15-year term are less likely to default on their mortgage payments than those that are in a 30-year mortgage. Mortgage companies do not exist to have unpaid mortgage loans and properties in their portfolios. At the end of the day, they exist to have made money on the loans they closed on that are held in their portfolios.
Finally, lenders will always look at what your goal and objective for the loan are. Are you trying to purchase a home, refinance your current mortgage to save money every month, or shortening the term to save interest or are you trying to cash out some of the equity so you can pay off those high-interest rate credit cards? If you are trying to obtain a rate and term refinance to lower your monthly payment, there should be little to no loan level pricing adjustments, but if you are trying to cash out some of the equity to pay off debt, you can expect, depending on the LTV, some adjustments to rate, fees or both.
Using some of the equity to perform home improvements might be a better option for you than taking out a HELOC or Home Equity loan. When in doubt, having a professional loan officer from
7th Level Mortgage explain to you the benefits of working with them as well as the program you are interested in will only help you understand the programs available to you. Seventh Level Mortgage and their entire team of loan officers, processors, and underwriters are available for any questions you may have during the entire process.
7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.