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What determines Interest Rates When Buying Omaha Real Estate

What Determines Interest Rates ?
This article was written by Perry Dawes of First Mortgage Corp. A local Omaha Real Estate loan officer. If you are in need of a home loan, I would highly recommend you calling Perry..

Interest rates are determined by different investors (we have 9 different ones) that at least once per day "update" their pricing on loans to us based on the rate of return they need to get in relationship to the current market price of government securities...i.e. t-bills, bonds, etc......NOT STOCKS!! The main determining factors that dictate a particular interest rate for a specific borrower, are all based on "credit worthiness" (or risk). Therefore, the most
obvious of these factors are as follows:

1. Credit Score of borrower(s)............the higher the credit score, the lower
interest rate that can be obtained

2. Loan-to-value.................What percentage of the value of the property is
the loan?......(example...80% LTV means the borrower
is doing a down payment of 20%.........etc) The higher the
LTV, the higher the interest rate, as there is more risk with
a smaller downpayment. The exception to this is when a
borrower pays “mortgage insurance” (PMI), it reduces the
risk to an investor, so the rates are often lower when PMI
is involved in the loan.

3. Length of Time to "lock" the rate..............How long a time period is there between
the date you "lock" the rate (which guarantees a particular
rate for a specific number of days) and the expiration date
of the lock.....(15, 30, 45, 60 days etc.) The longer the time
the rate is guaranteed, the higher the risk to the investor,
thus....shorter time = lower rates.

4. Length of Loan Amortization......The length of time to pay off the loan....(15, 20, 25, 30
years, etc.)......The shorter the repayment period, the lower
the interest rate.......(example....if a 30 yr. Conventional loan
rate is 6.75%, then the 15 year loan would be approx. 6.375%...
usually approx. .375% to .50% difference in RATE...not just price)

5. Additional fees (points, etc.)......Sometimes borrowers pay additional origination fees
and / or discount points to"buydown" the interest rate. These fees are paid at closing...usually as a % of the loan amount. The rates I always quote to my customers are WITHOUT any additional fees....i.e. 0% Origination Fee + 0% Discount Points ("par"). If a particular interest rate desired by the borrower is not available at "par", they may choose to “buy-down” the rate by paying additional fees.

6. Loan Amount………Investors who purchase the loans originated by mortgage bankers,
banks, credit unions, etc. make a portion of their profit based on a small percentage of the total loan amount. Therefore, with a higher loan amount, the investor may have a few more dollars to work with, but still needs to make a profit to stay in business. So, a
higher loan amount can sometimes produce a slightly lower interest
rate for a borrower.

7. Type of Loan………The type of loan will also help determine the interest rate available
for a borrower. For example, an FHA or VA loan usually has lower rates than a conventional loan, and rates for a loan such as a NIFA, (a “bond” loan) is set by the organization responsible for that program. Another factor is whether the loan is a fixed-rate or an
adjustable-rate program. A fixed-rate loan will usually have slightly
higher interest rates than an adjustable-rate loan.
There are sometimes other factors that can influence the interest rate that is available to a borrower, but the ones mentioned above are the ones that usually determine the rate of
interest for the borrower.


Here is an example of “extending the lock when buying your Omaha Real Estate” and how that affects rates (using a 710 credit score)

FHA 97% LTV (Loan of $200,000) (These are the rates for this loan if I "locked" today)
60 Day Lock.......... Rate = 6.50%......... Fees = NONE
45 Day Lock.......... Rate = 6.375%...... Fees = .75%
30 Day Lock.......... Rate = 6.375%...... Fees = .625%
15 Day Lock......... Rate = 6.375%....... Fees = .50%

Conventional 95% LTV (Loan of $200,000)
60 Day Lock.......... Rate = 7.0%......... Fees = NONE
45 Day Lock.......... Rate = 6.875%....... Fees = NONE
30 Day Lock......... Rate = 6.75%....... Fees = .50%
15 Day Lock......... Rate = 6.75%...... Fees = .375%



Here is an example of “buying down” the current “par” rate (using a 710 credit score)

FHA 97% LTV (Loan of $200,000) (using a 30 day lock period)
Par Rate………….. 6.5% Fees = NONE
Desired Rate…….. 6.375% Fees = .625%
Desired Rate…….. 6.25% Fees = .875%
Desired Rate…….. 6.125% Fees = 1.25%

Conventional 95% LTV (Loan of $200,000) (using a 30 day lock period)
Par Rate………….. 6.875% Fees = NONE
Desired Rate…….. 6.75% Fees = .50%
Desired Rate…….. 6.625% Fees = .75%
Desired Rate…….. 6.50% Fees = 1.125%



Also, for the last 8-10 months, interest rates for FHA loans have been between .250%
and .325% LOWER than conventional loans of similar LTV (95% - 97%)

I hope this helps you understand how complex the rate pricing is, and when comparing different mortgage companies, make sure you are comparing “apples to apples”, i.e. whether there are any additional fees required for a particular interest rate. (buying down the rate, etc.). Always obtain a Good Faith Estimate that shows all the costs associated with a particular loan and interest rate. I also understand that different mortgage companies have different rates, but most of them are always very close to the others in pricing, as many of the same investors buy loans from each organization. Whenever I hear that someone is getting quoted an interest rate substantially below the market conditions, I always tell them to make sure of what the "closing costs" are.....any additional fees, etc.???..........because usually that is where the difference lies.


Perry Dawes Mortgage Consultant First Mortgage Co. Office: (402) 431-4343 Cell: (402) 690-7979 pdawes@firstmortgageco.com

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Rate Update

Omaha Real Estate update.

Slight change in NIFA rates last week.  VA and FHA are now at 6.34% 0+0 and VA and FHA HBA are 6.98% with 1 + 3/4%.   Conventional loans 6.74% 0+0 and HBA 7.38%  1+3/4%. 

Other rates have remained about the same with VA and FHA right at 6.375% to 6.5%  and conventional loans 6.5% to 6.625%  for 30 year fixed rates.  For those of you who might be interested in an Adjustable rate we have some awesome programs - even 100% financing.

Remember it is not like the "old" days - we now have to be concerned about credit scores,  loan-to-values,  lock periods before final pricing.

 

Mark Ciochon

Personal Lifetime Real Estate Consultant

Cell: 402-596-1234 Fax: 1-877-569-6130

http://www.housesinomaha.com