SANTA CRUZ (December 11, 2009) - There is no simple answer to the question that is asked more often than any other in our business: “What are the rates?”. Not only are mortgage rates based on an almost endless list of variables but every borrower’s individual situation is slightly different. Two borrowers comparing the rates and fees and payments on their mortgages would be like two neighbors comparing the payments and transaction details for the new cars they had just bought. There are just too many options to try to figure out who got the best deal.

Freddie Mac and Fannie Mae are constantly adjusting the guidelines that they require for loan approval. While these guidelines are primarily published in a binder as thick as a small phone book, there is constant tweaking that goes on inside the Automated Underwriting Software (AUS) that all loans must pass through prior to final approval. These internal changes that are made can turn a loan that has been preapproved at the time an offer is made to a loan rejection by the time the time the prospective homebuyer enters into a contract with the seller to buy a home.

Today, more than ever before, Freddie Mac and Fannie Mae are mandating a risk-based pricing policy. That is, those situations that are perceived to present more risk to the lender yet pass the current mortgage guidelines will require the borrower to pay a higher rate and/or higher fees. The best rates are offered to borrowers with high credit scores (above a mid score of 740) and low loan-to-value (LTV) ratios (below 60 percent).

Additionally, rates are based on a long list of particulars that include, but are not limited to, occupancy (primary residence, rental home, vacation home), size of loan (loans under $150,000 and over $417,000 have increased rates and fees), the number of days the rate is good for (lock period), the number of units (Freddie Mac and Fannie Mae provide financing for 1-4 unit properties), the debt-to-income (DTI) ratio, type of property (condominiums represent higher risk to lenders), purpose of mortgage (refinances that create cash for the borrower are riskier), type of loan (adjustable rate mortgages are riskier), number of properties that are owned by the borrower and have mortgages, etc.

Add all of that to the fact that, on any given day, each lender will have a slightly different rate and fee that they are offering. Needless to say, it would be tough to find two borrowers with the exact same set of particulars. That is why that when we are asked the question: “What are the rates?”, there is no accurate answer without finding out all of the details.

This column is written every Saturday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.