How Are Mortgages Rates Built?

Ever wondered how mortgage rates are built?

They are built with Loan Level Pricing Adjustments. There is a standard matrix for conventional mortgages, and then there are risk level pricing depending on the lender. 

Here is a matrix for FHA for one lender I know:

How do we read this? A loan officer would take the rate based on down payment and FICO score, and then add or subtract the differential that applies. So someone with a FICO score of 700 on the above scale, pays no differential. Someone with FICO of 780 with an FHA pays 0.125% less.

Hmm, interesting. Now let's look at conventional mortgages for Fannie Mae.

The following tables show Loan Level Pricing Adjustment rate matrix overlays/adjustments for all mortgages sold to Fannie Mae. Another example to consider why every mortgage loan officer is not built the same. 

To see the whole sheet, please visit https://singlefamily.fanniemae.com/media/9391/display  (Updated March 2024)

What does this mean? 

Let's say a borrow have a down payment of 94% and credit score of 685. Then their rate is par + 1.375%.

Now, interestingly, every lender has different "specials" or promotions they run to skew those percentages a little bit. It is all based on how each lender wants to influence it's risk. That is why it is better to shop with a broker like myself.

Let me know how I can help you, give me a call @ 503-753-7015