Misleading interest rate advertising; we see this everywhere. Mortgage lenders advertising interest rates that somehow seem to be better than the competition. You’ve seen the billboards, commercials, internet ads. Here’s a secret: Very few borrowers will actually qualify for those advertised rates.
And here’s why – those rates represent a ton of fine print. Large down payments, high credit scores, the amount of debt you carry… So to understand this bait and switch, we need to understand LLPA’s. An LLPA or Loan level pricing adjustment is a risk based fee assessed to mortgage borrowers set by Fannie Mae, Freddie Mac, or the lender. Basically a fee added to the cost of an interest rate based on the borrowers credit, the loan to value percentage, property type, and loan purpose.
For example, say you find a home that you want to buy for $300,000 and you see a lender advertising a good interest rate. You meet with the lender and after giving them your information, they tell you “Good news, you can get that advertised rate but with a few stipulations. First, your credit score’s a little low, so there will be a fee assessed at 2% of the total loan value. Second, you need to put at least 25% down.” In other words, if you could put $75,000 down and pay an additional $4,500 fee then that interest rate is all yours.
This scenario is just an example. The fine print will vary from lender to lender, but the adjustments will be consistent across the board. No lender can get you a better adjustment because they are already set by Fannie Mae and Freddie Mac.
But here’s the trick; start working with you loan officer before you start looking for a home. They will help you understand what steps you can take to qualify for the best interest rate and therefore save money when it’s time to purchase.
Contact your Intercap Lending loan officer today. Understanding what changes you can make now, can mean huge savings in the future. Intercap Lending. A name you can trust since 1978.