NJ First-Time Home Buyers

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Will I Get a Better Interest Rate with a Higher Credit Score?

Will I Get a Better Interest Rate with a Higher Credit Score?

by Steve Kappre, NJ Loan Officer

The simple answer: Maybe, but there are many variables.

As a rule of thumb, the higher the credit score the better the rate you will receive (or the less fees you will pay). This is most relevant when talking about conventional loan programs. For the best rates and options you want a credit score of 740 of more.

Interest RateWhat can make my rate higher?

  • Credit scores below 740
  • A property's status: Second home or investment property loans
  • Type of property: Condo vs. single family vs. mobile home vs. multi-unit
  • Loan amount: Conforming loan vs. jumbo vs. super jumbo

And the list can go on and on. Each variable can add to the interest rate and/or the cost of the loan. Some combinations can get very expensive as well as very limiting on your financing options.

FHA and VA loans are different than conventional. Many lenders will be able to offer the same rate for an FHA or VA loan if you have a 620 or better credit score. Some lenders will require a 660 or better credit score to get a better rate (or less fees).

What you may find from lender to lender is that the rates offered or the options allowed may fluctuate for the exact same program and financing scenario. On top of the guidelines that Fannie Mae, Freddie Mac, FHA, or VA set, lenders may place their own restrictions, commonly known as lender overlays. Lenders can go as far as to not allow certain loan options even though FHA, Fannie Mae, or Freddie Mac may allow the option themselves.

Keep doing you research. If you find yourself getting different answers to the same questions, you are probably talking to either loan officers that do not know what they are talking about, or one or more lenders you are talking to are telling you their guidelines based off of their particular lender overlays.

So the final answer is ...

Higher credit always helps - but isn't always required to get the best rates. Many lenders can offer the same rates for certain loans whether your credit score is 620, 720, or 820.

Steve Kappre is a mortgage loan officer in New Jersey. For more info or questions feel free to contact Steve.

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Comment balloon 44 commentsStephen Kappre • March 15 2010 07:34PM

Comments

It is amazing how the pricing of rates has changed. It seems that with many lenders, you simply get the market rate if your score is over 720. Anything less than that and you get dinged. 

Posted by Eric J, Flannel Guy DIY (Eric J - Dream Home Financing) over 7 years ago

Interesting. I was led to believe that a 620 would ALWAYS get a lower rate than a 750. Does the 620 have to pay points to get that same rate ???

Posted by Sheldon Neal, That British Agent Bergen County NJ (Bergen County, NJ - RE/MAX Real Estate Limited) over 7 years ago

The complications of mortgages make my brain hurt. And I'm with Sheldon. What's up with that?

Posted by Lisa Hill, Daytona Beach Real Estate (Florida Property Experts) over 7 years ago

I love how you open it......."Maybe".....The answer is Simple....Maybe.  Not really all that Simple.....but I FULLY UNDERSTAND YOUR VARIABLES HERE.  There are a lot of them for sure.

Posted by Larry Bettag, Regional Vice-President (Larry Bettag - Cherry Creek Mortgage) over 7 years ago

Steve nice job with your article on credit scores. I know there is quite a bit of standardized measuring when it comes to credit scores but as you mention many lenders treat these differently.

Posted by Bill Gassett, Metrowest Massachusetts Real Estate (RE/MAX Executive Realty) over 7 years ago

It amazes me now that a 700 credit score will not get you the best rate.  It's harder and harder to find people these days with a 700+.

Posted by Home Design, Home Design and Real Estate over 7 years ago

Steve, I am new in the business (five months) and am amazed to see the variations in credit offerings by different lenders. It is enough to make one's head spin.

Posted by Mark Montross, Listing and Buyer Specialist (Catamount Realty Group) over 7 years ago

It shoulg get interesting later this year as rates start to move upwards ! Thanks for defining lender overlays !

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) over 7 years ago

Steve, I always enjoy your "tutorials", and have every confidence in directing clients to them as a reliable reference.

Posted by Lisa Moroniak, SFR - Short Sale & Foreclosure Certified (Keller Williams Realty | Northern Virginia | 703.635.0388) over 7 years ago

A high credit rating is like having checken soup when you have a cold, it may not cure it but it sure won't hurt.

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) over 7 years ago

Always take care of your credit score when you can. It influences quite a bit, nobody ever got hurt by a great credit score.

Thank you

Posted by Scott Baker, Realtor Homes for Sale in Cincinnati, West Chester, Mason, OH Area (www.eHomeReports.com Coldwell Banker West Shell) over 7 years ago

There are new variables everyday in this ever changing mortgage world. My last 765 FICO score buyer got denied because he was moving from another area "where there is no proof he would make the same salary in the new area!!??!!"...

Posted by Claude THOMAS (Rossman Realty Group) over 7 years ago

if you're buying a home in southwest florida look out. it's twenty questions just to get to "and finally your rate will be influenced by your score," risked based pricing.

Posted by Jay Beckingham, "I love first time homebuyers" (Absolute Home Mortgage Corp) over 7 years ago

In Manhattan, figuring out the loan market really takes a specialist, the interest rates for non-conforming loans have so many variables like you mentioned, but clearly a strong credit score is going to be the surest way to get the best rate out there.

Posted by Morgan Evans, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) over 7 years ago

Very interesting Steve....I was always under the assumption that if you had a lower score you would be paying points to get the same rate as a higher score.

Posted by Dennis Duvernay Broker/Owner (Hillview Realty) over 7 years ago

And May the Good Lord have mercy on your soul if you have a lower credit score.  Prepare to enter the gates of hell if you do!

Posted by Russell Benson (Berkshire-Hathaway HomeServices/Anderson Properties) over 7 years ago

Valid points made.

Posted by Mickey Ballantine, #39300 REMN (REMN, Inc.) over 7 years ago

Great post, it's always important to have the best score you can have.

Posted by Reshawna Leaven, Hoping to be your Realtor® for Life! (Keller Williams Realty) over 7 years ago

Some of my clients were with Sheldon. They thought credit scores went across the board. One of the interesting, yet frustrating aspects of our industry is the phrase "it depends".

Posted by Brad Cullipher, Brad Cullipher Austin Mortgage (Austin Mortgage) over 7 years ago

Steve: Thanks for this easy to read and understand synopsis. These days we never know what we're going to get. I'm not sure our lenders do either! Have a great day!

Posted by Paul McFadden, Pest Control, Seattle, WA. (Paratex) over 7 years ago

For all the people waiting and not wanting to get in now.  Theyare going to be stunned and sad when the rates go up later this year.

Posted by Sajy Mathew, Making your real estate dreams become a reality! (Coldwell Banker Residential Brokerage) over 7 years ago

I'll answer Sheldon's question as many people have the same one ... points are not always required for someone with a lower score. In some cases, the SAME RATE is available for someone with a lower score (for instance 740 vs. 700 vs. 660 may ALL provide the same rate with NO ADDITIONAL fees). Here is where it gets COMPLICATED ... sometimes the parties of FHA/FNMA have "hits" or price/cost charges. Sometimes it is LENDER OVERLAYS that make a client pay more, and lastly sometimes it is LOAN OFFICER OVERLAYS that make clients pay more (yes tongue-n-cheek, nonetheless true).

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 7 years ago

Steve, 

Interesting, I had the impression a high score helped more, but I do get the variables you are talking about make a big difference.  

Thank you for sharing. 

All the best, Michelle

Posted by Michelle Francis, Realtor, Buckhead Atlanta Homes for Sale & Lease (Tim Francis Realty LLC) over 7 years ago

Steve, I would have thought the higher the credit score the better the rate!

Posted by Susan Brown (Keller Williams NE, Kingwood Texas (Humble & Atascocita too)) over 7 years ago

It all depends, that seems to be the answer to so many real estate and mortgage related questions. I would have thought that a higher credit score would almost guarantee a better rate.

Posted by Eileen Hsu, LICENSED REAL ESTATE SALESPERSON (Douglas Elliman Real Estate) over 7 years ago

Great information for any buyer.  A key note to buyers though would be that if you are comparing one lender to another be sure and compare apples to apples.  Some lenders will throw a teaser rate out there...this rate might be based on a 840 credit score with 20% down....something that most buyers don't have.

Posted by Damon Gettier, Broker/Owner ABRM, GRI, CDPE (Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert) over 7 years ago

Great Post.  Its difficult to quote someone a rate that has no idea about their loan scenario.  A lot of people shopping are simply look for rates to compare but do not want to give any information.  It is next to impossible to quote an exact rate without all of the information.  So, I automatically quote the best possible rates.

Posted by Justin Messer, Residential Loan Officer, USDA Rural Housing Loan (Supreme Lending USDA, FHA, and Conventional Loans) over 7 years ago

A btter score does typically afford you the opportunity for better rates.  Just make sure you compare apples to apples.  Some folks quote the best scenario to include credit score,LTV,impounds,mandatory locks,7 day lock and etc.  This is not a realistic quote when you shop. 

Posted by Kyle Jan, Phoenix AZ Homes for Sale over 7 years ago

Steve--the confusion continues to exist, and most Borrowers have no idea of what the score actually means, or which score is being used. The problem now is that the credit score is a given. There is no play, no consideration of the way the Borrower has behaved even in the face of adversity. We are closer to "Brave New World" than we want to admit.

Posted by Elliott S. Topkins, Massachusetts Real Estate and Title Atty (Topkins & Bevans-etopkins@topbev.com) over 7 years ago

I always looked at it like this; to get the "advertised" rate, you had to have great credit. Less than great credit, and the rate goes up from there. Another thing that is frustrating is that different areas of the country also have rates higher than reported in the news media. Here in Savannah, GA it is hard to match the "going rate" even with a score of 740 or above.

Posted by Judd Reynolds, Savannah, GA (Exit Team Realty) over 7 years ago

It is alwyays best to have the highest FICO score possible.  But some lenders will make concessions and give some very decent rates to borrowers with less than stellar credit.  So you are right on and I always tell my clients to shop around and go so far as to suggest at least 3 lenders to help their approval along. 

Posted by Al over 7 years ago

Good Information. Straight answer = maybe.

Posted by Gregory Bain, For Homes on the Jersey Shore (Mezzina Real Estate & Insurance) over 7 years ago

I enjoyed this post today very much.  I'm dealing with someone now who is getting a great rate for a high credit score. As you say, there are many things that go into the whole package, income, debt to income ratio, etc...et c...etc..

Good read, i've bookmarket it.

 

Patricia/Seacoast NH

Posted by Patricia Aulson, Realtor - Portsmouth NH Homes-Hampton NH Homes (BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate ) over 7 years ago

Steve,

I always just assumed that the higher the credit score, the lower the interest rate. Now I know that this isn't always true. Thanks.

Rich

Posted by Richard Iarossi, Crofton MD Real Estate, Annapolis MD Real Estate (Coldwell Banker Residential Brokerage) over 7 years ago

This is good information for consumers.  So many just don't understand what goes into making up their final rate and what can be done to effect it.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 7 years ago

Thanks for the post - I'm going to re-blog. Just wondering if there's anybody out there with a 740 score anymore!

Posted by Pam Turner, REALTOR®, e-PRO®, SFR (Century 21 Belk Realtors Dalton GA) over 7 years ago

Steve, thanks for the explanation.  Seems I've been batting zero with virtually every client I pick up here lately.  They've all had not so great credit scores.  One of them finally got her scores into the mid 600's and she still can't get a loan. 

I recommend a couple of different lenders, but they always say there's "nothing they can do with scores like that".  I know lending requirements are strict, but I'm beginning to wonder if I need to start shopping for some other lenders that may have programs for someone that does have a score in the mid sixes.

Chanda panda

Posted by Chanda Barrick, in referral (Keller Williams Indy Metro Northeast) over 7 years ago

Revised: Will I Get a better interest rate LOAN with a Higher Credit Score? 

MAYBE...

Posted by Jenna Dixon, Assoc Broker - Let's Talk Cobb County Real Estate (DRA Homes | Cobb County Real Estate ) over 7 years ago

HI Steve, thanks for sharing this information.  As always, it "depends" on any number of factors.  Wouldn't it be nice if it was more straight forward?

Posted by Silvia Dukes PA, Broker Associate, CRS, CIPS, SRES, Florida Waterfront and Country Club Living (Tropic Shores Realty - Ich spreche Deutsch!) over 7 years ago

Hi Steve:

I stopped by to wish you a Happy St Patrick's Day from the team at National Credit Fixers!

:)

Posted by Matt Listro, Your Credit Repair Expert (National Credit Fixers - Matt Listro) over 7 years ago

I had a client that had flawless credit his entire life (he was 57 years old), and very little outstanding on his current mortgage. He received his approval on his seasonal home and he came right out and told the bank that if they wanted to do business with someone of his calliber, that they had to give him even a better rate than the "lowest rate" that they had already given him. They dropped another 1/4 point immediately.

Posted by Steve Blehl over 7 years ago

Chanda - Mid 600's should not be difficult if the buyer can document income and assets. Is it a weird property?

Posted by Stephen Kappre, Helping You Home (KW Hometown) over 7 years ago

I think your first answer of "MAYBE" is dead on. I've seen many people with higher credit scores get really crappy loans just because they had a higher debt to income ratio. It really does come down to the situation, not all homes, neighbors and situations are the same. Credit Score certainly isn't everything.

Posted by The Friendly Home Team, Brokers - Oregon / SW Washington Real Estate (Realty Pro Oregon, LLC) over 7 years ago

Nope.  That's why I'm thinking I need to start shopping for other loan officers to add to my toolbox.

Posted by Chanda Barrick, in referral (Keller Williams Indy Metro Northeast) over 7 years ago

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