Why Is My Rate Different? Factors That Affect Pricing

Why does the pricing vary so much between lenders and borrowers?

Every situation is unique and unfortunately this is a sales industry.

There many variables that go into the rate equation and unless you cloned yourself and bought the same house on the same day, you’d likely receive different pricing.

At Kasey Home Loans are always incredibly transparent and honest about our pricing, decisions and why we choose to go down certain paths loan wise. We make sure you’re comfortable at all stages.

The mortgage industry is similar to car sales.

The mortgage industry is sales and most positions are commission. Because of this, there is much shenanigans to convince borrowers to work with them instead of having a holistic look into the best option for the borrower. Most loan officers don’t even know how much their company is making. This is especially true at banks and very large companies.

We have a whole article on how loan officers are paid, how much they make and how this can influence their decision making which you can read here. We also cover how you can choose the right type of loan officer that will have your best interests in mind.

One of, if not the largest, factor in getting a good deal is choosing the right type of loan officer.

Most lenders have fairly similar guidelines that affect pricing and at the end of the day, the profit margin that the lender/broker sets is going to have the largest impact on your pricing.

Although the CFPB tells us that we need to standardize pricing between clients, there is still large variance at most companies based on what they perceive the competition will be for that client.

A software engineer in Palo Alto, CA will almost certainly receive better pricing than someone that is easy to deal with in Louisiana.

That’s not right - We know that and isn’t something that we do - it’s just unfortunately the way it is. The CFPB can’t enforce every instance of preferential treatment.

Factors that can affect pricing

• Property Type:

  Condo’s will typically have higher pricing if you put less than 25% down. This is due to the fact that there are things outside of your control such as the HOA that can potentially affect the mortgage risk.

  Multi-family can be more expensive depending on the amount of units.

• Property Use:

  Investment properties and Second homes are substantially more expensive than primary residences. For both investment and second homes we strongly recommend you be able to put down over 25%.

• Credit Score:

  Credit score has a large impact on conventional loans when you go below 740 and is dependent on the down payment as well. If you’re putting a large amount down ( 25%+ then it has less of an impact). Below 700 we’d strongly recommend doing an FHA loan which only is impacted by credit below 640. There is a hit to pricing at 640, 620 and at 580 for most lenders.

• Loan-to-Value (LTV) Ratio:

  The LTV is one of the largest impacts to pricing. Pricing is normally quite consistent between 20% and 10% down. It typically get’s worse if you put less than 5% down and typically get’s a bit better over 20% with no reward over 40% down.

  LTV has no impact to pricing on FHA loans.

• Debt-to-Income (DTI) Ratio && Employment history:

  These have no affect pricing.

Pricing varies very quickly with time.

The pricing of mortgage loans varies on a daily basis and can move by large amounts overnight. If you take a look at any of the mortgage rate graphs googleable you can see that there can be 1% swings to rate in as short as two weeks. It’s very possible for a rate to be 1% worse or better in under a month.

Conclusion

Make sure you are working with a loan team that is transparent and honest. A good loan officer will be able to walk you through why the pricing is the way it is.