Note: The following guest blog was written by Senior Mortgage Consultant, Sam Thompson, with Community & Southern Bank.
The thing on the tip of most lenders’ tongues these days when we pre-qualify borrowers is this one question: what are your credit scores? The answer to that question will basically determine the prospect’s chances of qualifying for financing as well as their interest rates. Fortunately or unfortunately, the derivation of one’s credit score is not an exact science, but attaining a minimum credit score for almost all loan programs is a must. That score for government lending programs such as FHA and VA these days has basically evolved to a middle score of 640 while conventional loans typically require 660-680. The best interest rates are awarded to borrowers with scores over 740, and someone putting 30 per cent down or more will get a better rate by about 1/4 per cent over someone just putting 5 per cent down on conventional loans.
Any conventional loans over 80 per cent loan-to-value have to go through an extra layer of scrutiny and cost known as default insurance, better known as mortgage insurance or PMI for short. PMI on an FHA loan is required regardless of the per cent down and can add almost 1 per cent to the annual percentage rate (APR) as it is charged to the borrower in two different ways: up front and financed in the loan amount and monthly as part of the total payment. Lenders only charge PMI monthly on conventional loans. Thus the APR is lower. The bottom line for would-be borrowers is that those with higher credit scores and more money down, can qualify for lower rates.
Sr. Mortgage Consultant
Community & Southern Bank