Interest Rates and FICO

Your real estate loan is affected by mortgage interest rates. FICO means a lot when it comes to getting a loan for buying your first house.It is your credit score and measures how likely the borrower is to repay their loan.

Credit scores analyze a borrower’s history using some of these general factors:

  • Late payments to the amount due.
  • The amount of time credit has been established.
  • The amount of credit used versus the amount of credit available.
  • Length of time at present residence.
  • Employment history.
  • Negative credit information (i.e. bankruptcies, charge-offs, collections, etc.)

Now, how does all this affect getting a real estate home loan? If you apply for a home loan with a FICO score of 620 or higher, you will most likely be approved for the current lowest interest rate, that is, if you are submitting full documentation (proof of employment, assets, etc.). Basically the higher your FICO score, the lower and the better interest rate for your loan that they will offer you. And on the other hand, the lower your FICO score the higher interest rate you will get on your mortgage.

FICO scores affect more than just getting approved for a loan or not and how high or low your interest rate will be. They can also affect how much you will be paying for your loan too. Some mortgage lenders establish what is known as a “base price” and will reduce the points on a loan if the credit score is above a certain level. For example, there is one major national lender who will reduce the cost of the loan by a quarter of a point (a point is equal to one percent of the loan amount) if your FICO score is above or greater than 725. If it is between 700 and 724, they will reduce it by one-eighth of a point.

There are other lenders who do this process in the exact reverse way. They first establish their base price for you. Instead of reducing the price for borrowers with good FICO scores, they will “add on” costs for low FICO scorers. The results from either one of these methods would result in approximately the same interest rate. The second way “looks” better for quoting interests rates in advertisements.

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Real Estate Investment Trust (REIT)
A Hedge Against Inflation
Will the Real Estate Bubble Burst?
Variable V.S. Fixed
Modern Financing
FICO: How will this affect your interest rate?
Stress of Buying or Building a New Home