Just what factors go into the pricing of a mortgage here in the Seattle area? They are (not all inclusive): Credit score, ability to repay, desire to repay, job status, type of property, property location, whether property will be owner occupied or non owner occupied, purpose of the loan, documentation level and buyer’s assets. Each lender will assess these factors differently and will possibly add or subtract other factors.
A factor that most borrowers don’t realize is that the lender is making the loan for an investor. This investor may be an individual, an institution, a business, a state or even a nation state. Each investor has different parameters and different objectives. So each loan they do for that investor will be guided by what the investor wants.
Credit score is the first and most heavily weighted factor. If your score is over 720 some lenders will offer a rebate to the borrower for the loan. Scores between 680 and 719 usually will cost nothing and rebate nothing. Scores below 679 down to 640 can cost anywhere between .5% and 1.5% of the total loan amount. Personally I think this is counter-productive and will delay the recovery, possibly for years. Scores below 639 have a very difficult time getting funded. Lenders have told me they will do these loans but somehow they never seem to actually fund them.
The ability to repay usually goes with job status. Lenders want to know you have job stability and through that the ability to repay the loan. Debt ratios play a part in this also. Job status will also include whether the borrower has at least 2 years work history in the field they are in right now. If self- employed, has the borrower had a business license at least 2 years.
Desire to repay is just plain credit repayment history. Has the borrower repay on time and in full. Paying up a debt early doesn’t always help because the repayment needs a history of paying over time to show the pattern.
Type of property: A SFR (single family residence) is best. Residential property is considered up to a 4plex. Lenders give different weight to multi-family properties.
Location of property has some impact. Lenders can no longer red-line certain area and refuse to loan within those boundaries. But as far as individual loans being made in specific areas the lender can refuse to fund a particular loan. Also an atypical property within a certain area will have a hard time getting funded.
Owner occupied properties will always be favored over investment property. Obviously an owner occupied property will have someone who makes their home there and that makes a big difference in the performance of the loan.
Propose of the loan: Cash back will always draw more scrutiny than a purchase loan. In a cash back refinance the lender will ask what you plan to do with the money, that is reasonable and also due diligence.
Documentation of the loan: Believe it or not there are no doc loans out there. Logic tells you that the more documentation a loan has, the more information the lender has, the clearer the picture becomes. So more information makes for a better picture and an easier loan to make.
The last item, not really, is the assets of the borrower. If someone makes $100,000 per year for any length of time they will accumulate assets. The amount and type of assets help paint a picture of the borrower. Assets can also be used to repay a loan.
I hope this discussion of how loans are priced in Seattle helps you when you actually make a loan.
