Loans -Risk Based Pricing/Loan Level Price Adjustments

Allow me to introduce you to the latest in the mortgage business for 2008 - Risk Based Pricing or Loan Level Price Adjustments. Basically, the concept is that additional points are being added to loans based on how risky the borrower is. These are not the discount points used to buy down the interest rate, these are additional points making the loan cost more. The lower the credit score of the borrower, the more points and cost.

Yesterday I was chatting with a lender at First Horizon about a potential "refi" on an investment property. Here's the scoop or an example on what the points are looking like now based on the offerings from First Horizon:

Full Doc
680 & Above - no points
679-660 - 1 point
659-640 - 1.5 points
639-620 -1.75 points
under 620 - 2.5 points

Stated Income Loans -Must have a minimum of 680 score
720 Score - .5 point added for stated income
680-720 - 1 point added for stated income

This is a far cry from the old days when as long as the borrower had over a 620 credit score, loan costs were basically the same.

Thankfully, real estate investing provides creative ways to invest even without having great credit. However, when you are ready to refinance those deals that didn't require credit to purchase them, credit becomes very important. If your credit is not the best and even if you are successfully investing without credit, begin working towards improving your credit score. There's tons of great information at www.myfico.com.