As we find ourselves beginning a new year, our loan officers continue to be asked why different mortgage rates exist for different borrowers. We believe that it is important for you to understand the reasons, and they have nothing to do with politics!

It really comes down to the perceived underlying risk on that loan. The subject property and the borrower will always have unique characteristics, but even identical scenarios will be priced differently by different lenders. For every borrower, thousands of different banks, lenders, and credit unions compete with one another to offer the lowest rate and/or the best customer service and product.

You can think of it as the higher the risk of default, the higher the mortgage rate. Banks and lenders start with a base interest “par” rate and then raise or lower it based on the specific home loan criteria. Other mortgage lenders make many assumptions when advertising rates, and particular loan scenarios may be quite different than the hypothetical. First Community Mortgage loan officers discuss your scenario with you in order to best understand the rate and price for you. There are loan pricing adjustments for things like loan amount (conforming or jumbo), documentation (full, bank statements, etc.), credit score, occupancy (primary, vacation, investment), state, loan purpose (purchase or refinance), debt-to-income ratio, property type (single-family home, condo, multi-unit) and LTV or CLTV. And more!

An individual purchasing a single-family home with a conforming loan amount, a 20% down payment, and an 800 FICO score is going to qualify for a different rate than the individual requesting cash-out on a three-unit investment property with a 650 FICO. And again, rates will vary from lender to lender, because different lenders want different loans in their portfolio to hold onto or sell into the secondary market, meeting investor appetite. This is why it’s important for borrowers to understand how risky their particular loan is, and the different rates and products for which they can qualify.

First Community Mortgage firmly believes that we can offer you the best combination or product, pricing, and service, and thousands upon thousands of our borrowers agree. Ask one of our loan officers… we will work with you to determine the best combination for your unique situation.