What Risk Factors Will Make My Mortgage More Expensive?

When you’re in the market to buy a new home or investment property, it’s one thing to get a pre-qualification over the phone and a completely different thing when you later sit down and actually apply for a loan. So before you get too far into the process, you should know which factors could end up inflating the interest rate on your mortgage.

Over at Reuters, they’ve linked to a matrix Fannie Mae [PDF] uses to adjust interest rates on new loans.

Among the biggest risk factors that virtually guarantee an upward adjustment on your interest rate:

* FICO scores below 740: Even a not-horrible score of 700 could add .75% to your rate. The low end of the range (620-639) could add a full 3%.

* 40-year loans: Will add .125% to your interest rate.

* Investment properties: Be prepared to add at least 1.75%.

* Condominiums: Add up to .75%.

* Manufactured homes: That’ll be another .5%.

* Multiple-unit properties: Will have you paying an extra 1%.

From Reuters:

One other side effect of risk-based pricing: The stricter underwriting rules also make it more difficult to qualify for a loan, which is not much help to markets that are swimming in properties and won’t get back on their feet unless demand returns…

If only the mortgage barons had some realistic underwriting standards five years ago. It would have prevented a lot of heartbreak.

What mortgage brokers don’t tell you: Hidden penalties abound [Reuters]

Loan-Level Price Adjustment Matrix [Fannie Mae (PDF)]

Comments

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  1. FatLynn says:

    Well, you could also look at this as though people are being rewarded for having good credit scores, instead of spinning everything as a penalty.

    • unsmith says:

      That doesn’t help when your credit scores can be destroyed by a third party making false claims against you, or when simple, honest mistakes cause your score to tank.

      • Xyjar says:

        Just don’t make simple and/or honest mistakes. It’s worked out for me so far.

      • thompson says:

        I’ll grant you the third-party problem.

        But as for “simple, honest mistakes”… does it really matter why the mistake was made? The risk to the creditor is the same. My guess would be that those who make “simple, honest mistakes” pose a greater risk than those who do not. That doesn’t mean they are bad people, but I think it’s fair to say that if you make a mistake, regardless of your maliciousness, it can get factored into your score.

    • tbax929 says:

      You betcha. I’m enjoying my 3.8 rate, and I feel like I worked hard to get it. It’s a reward for being responsible, paying my bills on time, and living well within my means.

    • Tim says:

      And that people are being rewarded for not investing in real estate. And people are being rewarded for buying non-condos, non-manufactured homes and detached houses.

  2. Evil_Otto would rather pay taxes than make someone else rich says:

    Why the hate on manufactured homes? That seems a little abusive.

    • Loias supports harsher punishments against corporations says:

      I can only imagine that given how little they tend to cost, the interest is higher because of the increased risk on delinquency because only poor people buy manufacturered homes. I’m generalizing, of course, but so are underwriters.

      • Me - now with more humidity says:

        Tell that to all the comfortable retirees here in Florida who in live in nice subdivisions of manufactured homes.

        BTW, manufactured homes and mobile homes are different animals.

        • Powerlurker says:

          No, “manufactured housing” is the industry term for what are colloquially known as “trailers”. What you’re thinking about is “prefabricated housing” which don’t have the same mortgage issues.

      • Anonymously says:

        Not all new manufactured homes are “cheap”. Some can cost 100K or more.

        From http://www.mh-quote.com/FindHome/HomePrices.asp

        New Home Prices
        · Park Model, 350 – 450 sq. ft., high-grade construction $50,000
        · Small, single-wide home, 600-800 sq. ft., economy construction: $24,000
        · Large single-wide home, 1050-1150 sq. ft., mid-grade construction: $38,400
        · Small double wide home, 1250-1350 sq. ft., mid-grade construction: $48,000
        · Large double/triple wide home, 1800-1900 sq. ft., mid-grade construction: $72,000
        · Largest double/triple wide, 2000-2200+ sq. ft., high-grade construction: $96,000+

    • Bsamm09 says:

      I think it may be due to their less durable nature. Just a guess.

      • beachmouse says:

        The post-Hurricane Andrew construction codes for manufactured homes really are quite good in terms of insulation and structural integrity, actually better than some state building codes for site-built homes. (Though fit & finish issues are another matter) I suspect the premium buyers pay is a combination of low resale values for the home and higher default rates among that buyer group.

    • K-Bo says:

      My guess is a manufactured home staying livable for the full term of a 30 year loan is less likely, so they try to make more money early on.

    • bar_foo says:

      They probably don’t keep value the way a built house on a foundation does (heck, a delinquent homeowner could, in principle, even sneak away with his or her house), so they are less useful as collateral.

    • YokoOhNo says:

      because the poor can’t fight back effectively…they are an easy mark for banks and other scam artists.

    • gman863 says:

      No more abusive than the hate tornadoes unleash on them. I recently read the odds of going to the afterlife via The Yellow Brick Road is about five times greater for mobile home residents than those who live in a regular home or apartment.

  3. BrianneG says:

    Man, getting a mortgage sounds really scary. Maybe we should just rent for the rest of our lives.

    • Buckus says:

      If you get a 40-year mortgage, you pretty much are. By the time you burn the mortgage, you’ll be applying for Social Security.

      • Bibliovore says:

        At least at that point you won’t have rent or mortgage payments. (Property taxes and homeowner’s insurance still, but hey.)

      • myCatCracksMeUp says:

        yes but the payments will be the same for the entire 40 years (not counting insurance and property tax). Compare rents today against 40 years ago, and you’ll see the cost is MUCH higher today.

  4. Buckus says:

    Closing on Days that end in ‘y’ will ad 0.5%.

  5. SecretAgentWoman says:

    I have over $50k in medical bills I can’t pay (yeah, go ahead republicans, tell me again why you want to repeal the health care reform) and I’m getting married. I’m really worried that I am going to drag my new husband down into my credit mire and we are going to get hosed trying to buy a house in a couple of years. :(

    • AustinTXProgrammer says:

      Consider not actually legally tying the knot? Maybe a bankruptcy before hand, but I realize that may be worse than simply not paying.

    • 451.6 says:

      Before you get married, you should seriously think about financial counseling. A good financial adviser can walk you through all your options. It might be better if you buy the house before you get married. A good FA can walk you through your options.

    • not-gonna-tell-ya says:

      Can’t pay for Medical bills but can pay to get married? I’m not trying to be a troll here, but can you and your soon to be new husband not pay either? Ever? anything? I call BS

    • TasteyCat says:

      So Healthcare reform means no medical costs?

      • pawnblue says:

        Not in America. Here, health care reform probably means higher costs. Of course, in other countries, their health system has eliminated medical bankruptcies.

        Just remember, as long as you don’t get sick, our health care system is great!

    • jtoast says:

      ummm…how about because I would rather you pay your $50K than my tax dollars?

  6. Simon Barsinister says:

    This chart doesn’t make sense.
    Right in the first section…

    Why does the adjustment start low for very low loan-to-value ratios, go higher for medium loan-to-value rations, then drop lower again for very high loan-to-value ratios?

    A low loan-to-value ratio should be good, right?

    • mortgagejake says:

      This is because above 80% loan to value, the loan has mortgage insurance on it, which makes it slightly less risky for the lender. That is why.

  7. mortgagejake says:

    This article is slightly misleading. Lenders work on a set of pricing. So, for a rate of 4.750%, one lender may give the borrower 1.750% towards closing costs. I am a loan officer, so I might charge 1.750% in origination charge, but it is all credited back to the borrower, so they get charged less in closing costs. SO, if your loan level pricing adjustment for your scenario is a hit of .75% to PRICE, then to get the same pricing, I may have to bump the rate up to 4.875%. So, these pricing hits are not to RATE, but to PRICE. Good things to know though.

    • mac-phisto says:

      came in here to say basically the same thing. yeah, in a way they can make your loan more expensive, but not the same way. the percentages in the chart are cumulative & then charged like points (% of loan balance) to the lender by fannie mae. so, a $200,000 home with an adverse delivery charge of 1.5% means that the lender would have to pay fannie mae $3,000 to book the loan as a conforming MBS.

  8. mac-phisto says:

    first, you need to find out what the laws are in your state regarding property. simply getting married doesn’t typically mean that your debts are now joined. & even in community property states, debts & property held individually before union typically stay that way. still creditors will look for any opportunity to glom onto property through whatever means they can using whatever loopholes they can.

    damage control: if your future husband has good credit & you don’t, you need to quarantine yourself – no joint accounts & be sure to isolate property – especially real property – from attachment. it might be worth consulting a bankruptcy attorney or credit counseling service to resolve the debt before you get married.

    most important is honesty. you both need to understand where you each are financially & strategize your financial future together before you tie the knot. g/l.

  9. myCatCracksMeUp says:

    I’m in the process of buying a second/vacation home and the interest rate is going to be .125% above what it would be for a primary home. Drat!

  10. rambo76098 says:

    I got 4.125% on a condo summer 2010, 30 year, so I’m going to go with this isn’t always the case.

    • mortgagejake says:

      Well, depending on the loan program you used, they are pretty much always used. But, if you got an FHA loan, they do not have LLA’s. Or, if rates were really good at the time you locked, maybe the pricing hits were there (see my earlier post on PRICE vs RATES), but it didn’t matter because the rate was so low. Or, if you put enough down, etc., etc. Every loan has lots of components to it now.