I am gonna show you how to get a lower interest rate through
a strategy called Rate Hacking.
So first, there's a new change to interest rates that you need to know about.
Here's the big picture.
People with high credit scores are going to see slightly higher interest rates.
People with lower credit scores are going to see slightly lower rates.
I'm gonna tell you how you can take advantage of this here in just a bit.
Bottom line, it is still more expensive to have a lower credit score.
There's a little bit of a misinformation going around right now where people
are saying that it's better to have a lower credit score on a
conventional loan to get a lower rate.
That is absolutely not true.
I'm gonna show you a chart and exactly how this works.
Okay, so there's this change that's happening on conventional loans
only that takes place on May 1st.
Now, here's the thing.
That's when loans get delivered to Fannie Mae or Freddie Mac.
So these changes.
Are taking place already with lenders all around the nation, and it hasn't changed
the way people are purchasing homes.
People are acting like this interest rate change is the end of
the world and the sky is falling.
That's simply not true.
It's already taken place and the news is coming out after the fact.
These are for loans that are delivered on May 1st, meaning loans originated right
now, already have these changes in place.
Okay?
Again, they're for conventional loans only.
So this does not apply to fha.
It does not apply to va.
It does not apply to USDA or Jumbo loans, portfolio loans.
Any other programs like that?
Only conventional loans that are through Fannie Mae and Freddie Mac, which are
most conventional loans throughout the US.
Okay, so really quickly, how mortgage rates are determined is
through what's called a Rate Sheet.
So a lender doesn't just give you one interest rate.
They may only show you one, but actually there's a whole list of
interest rates all the way down from the very lowest to the very highest
interest rate the lender could offer.
And those have a cost or a credit associated with them.
So for instance, you might be at a, let's say a 6% par rate.
Meaning it has $0 in cost, well, you could get a 5.875% rate and it costs you money
upfront, almost like prepaid interest.
Or you could get a 6.25% rate and get a lender credit.
So it's all in this rate sheet.
And the way that rate sheet is determined, how much that par zero
cost interest rate is going to be is through risk-based adjustments.
And in the conventional loan world, these are called Loan
Level Price Adjustments or LLPAs.
So basically they change the rate based on how risky the loan is.
So, they're gonna change depending on things like your
credit score, your down payment.
Your debt-to-income ratio, that's been a new change that right now is
paused and we're not sure if that's going to come into play or not.
If you have a condo, an Adjustable Rate Mortgage, a high balance loan, a loan
with multiple units or an investment property, all are risk factors that are
being considered in your interest rate.
Now what happens is Loan Level Price Adjustments are a fee, okay?
But you don't pay the fee upfront.
It's factored into your interest rate.
So this is an excerpt from Mortgage News Daily that says this doesn't necessarily
come outta your pocket upfront as loaners can offer a higher interest rate in
some cases and pay these costs for you, but the costs are still there and still
technically being paid by you over time.
In the form of higher interest rates.
Okay, so when you hear this fee, that's what's happening is it's the interest rate
that's changing on that rate sheet, okay?
With a Loan Level Price Adjustment.
Okay, so let's run through an example, then I'll show you a chart
and then we'll go into rate hacking.
Okay.
So for these changes there's a complex chart that I try to make
a little bit more simple, that'll show you in an upcoming slide.
So, if we were looking before this change and after this change,
let's first look at this scenario.
Number one, if you had a 740 credit, okay, so before the change and after the change,
and you're putting 20% down the fee.
Before would've been 0.25%.
Again, that is not 0.25% in interest rate.
That's 0.25% of your loan balance.
Okay?
It's expressed as a percentage, and then normally what happens is
a lender will increase the rate to absorb that cost, not 0.25%.
Okay?
It does not mean that you're going at 6.25, okay?
It just means normally what ends up happening is about 0.5% of an adjustment.
Is about 0.25% in rate change.
So this fee right here is only about one eighth of a percentage
point in interest rate change.
So it went from 0.25 to 0.875.
So that rate change, that means that this change for somebody
with a 740 score, 20% down.
Likely is going to see a 0.35% higher interest rate.
Okay?
Now on a $400,000 loan that comes to around just under
$80 per month indifference.
Okay, now let's take somebody who has a 640 credit score with 5% down.
We can see the fee change here, so that change is going to be about a difference
of lowering the interest rate by about 0.5% on the interest rate and about
$130 per month as a lower payment.
Okay?
Now here's how to see these adjustments.
If you go to WintheHouseYouLove.com/ratehack.
I have a whole chart that I'll walk through.
Okay, so on this page it's showing you the credit score brackets along
with the down payment as well.
Okay.
And so you can find exactly where you are at in here.
All right.
So, in here a lot of people are kind of saying this thing, like it's not fair.
People who have lower credit scores are getting better interest rates.
It's not true.
Nowhere in here is there a lower credit score that is going to
get a better interest rate than somebody with a higher credit score.
I color coded the chart for you.
It's not happening.
Okay.
Even though the changes did get made where there's basically evening of those
fees where the fees used to be stacked against people with low credit scores.
Now what's happening is this evening out okay, there's not
a shift in the other direction.
It went from here to an evening out of the playing field.
People with lower credit scores still have higher interest rates than
people with higher credit scores.
Okay?
So what I did is I took the 0.5 adjustment.
Converted it to about a 0.25% change in rate.
So theoretically this is about how much your interest rate would change based
on your down payment and credit score.
So theoretically we don't know what the base rate would be.
Only a your lender would know that, but let's say you had a 6% base rate.
We could then come along the chart and say, if I'm doing 10% down with a 720
score, I then would have a 6.5% interest rate based on just this risk factor alone.
Okay?
So the difference here is, you know, in no way is it better for
you to have a lower credit score.
It only is better for you to have a higher credit score or to put less money down.
You could put 3% down and get a 6.375% interest rate in this theoretical example.
So some notable changes here.
The penalty for having a credit score under 680 is now
smaller than it was before.
That's one of the biggest changes that we're seeing.
Also, there's a new credit score band at 760 and 780.
So it used to be that 740 was the top of the charts.
You couldn't get a better interest rate by having, you know, a 760 or a 780.
And now there are.
Those extensions at the top.
Okay.
Now before we go into Rate Hacking, you could be completely waived from
all of these fees entirely, okay.
Through what's called a Loan Level Price Adjustment waiver.
And there are two ways to get a Loan Level Price Adjustment waiver.
The first way is through a HomeReady or a home possible loan.
And what these loans are is you have to be under 80% of the Area Median Income in the
area that you're looking to purchase in.
If you get a home ready loan, then you will not have any of these fees
and you'll get a lower interest rate as well as lower mortgage insurance.
Okay?
And I'll put a link to the Area Median Income Lookup Tool in
the description of this video.
Now, the second way is if you don't qualify for that loan and home
ready doesn't, you do not have to be a first time home buyer.
The second way is if you are a first time home buyer and under a hundred
percent of the area median income, or 120% in high cost areas, again, that
link will be down in the description.
So a lot of people are going to fit into this category and not even have
these fees at all which can be helpful.
So here's how rate hacking works is we're gonna take advantage of the
Loan Level Price Adjustment Chart.
This is completely legal and completely ethical.
Okay, so all we're doing is taking the rules from the chart that have been
published publicly by the FHFA, and we're just using those to our advantage.
So you can go to WinTheHouseYouLove.com/ratehack.
And here's what you're gonna do.
First is look at your bracket on the chart.
Where do you fall with the down payment and the credit score?
Then you're going to put less down to lock in a lower interest rate, Okay.
So just like the example from before, if we did 3% down, we're actually
going to get a lower interest rate than if we put 10% down.
Okay?
Then what we're gonna do is put the difference on payment number one.
Alright?
So from that difference, 10% to 3%, there's 7% difference in there.
So we put 3% down to lock in the lower interest rate.
Then we take 7% and put it on payment number one.
Now, if you want to, you can either just apply this to the principal.
Keep in mind that the lower down payment will have a higher monthly payment.
So, what you can do is what's called a recast.
This usually costs around $200 to then lower your monthly payment with
that lump sum on payment number one.
Okay, so here's an example of how this would work.
Let's say that you had a seven 20 credit score and we're
looking at a $400,000 purchase.
Now, let's say also you were looking at doing 20% down.
Well, with 20% down, theoretically we might get a 6.625% interest rate.
Okay?
Now, if we did 3% down, we could get a 6.375% interest rate.
Now I obviously would like 6.375% over 6.625%, but what are we gonna
do with the rest of the money?
So we have 17% leftover, 20% minus 3%, and we're gonna apply
that to the first payment.
If we apply that to the first payment over 10 years happen is
we'll save $27,000 by rate hacking.
So you can use this strategy too.
Okay, it's not gonna be life altering and completely change the course of what's
happening in the real estate market.
All this is going to do is use the rules to your advantage, right?
Because no one can change what's happening with the FHFA.
No one's can, no one can change what's happening with housing and
interest rates in the whole deal.
What you can do though is see what the rules are and use them to your advantage.
And if you're struggling with this, if you need help, if you need someone to
help guide you through, some of the Loan Level Price Adjustments we have mortgage
advisors in all 50 states, and you can connect with them with a free pre-approval
call at WintheHouseYouLove.com.
My team would love to be able to talk with you and guide you through
how to structure your interest rate in the best way possible.
You do not have to figure this out alone, okay?
These changes with Loan Level Price adjustments are automatically
applied to every Fannie Mae and Freddie Mac conventional loan.
So you don't have to say like, Hey, can you get me the waiver?
Hey, can you you know, get me whatever percentage bracket?
You don't have to say that because it's automatically being applied
with every single lender nationally.
I just want you to understand exactly how it works.
The only thing that you would have to communicate to your loan officer
is, Hey, I want to do a higher down payment, but I also wanna take advantage
of the lower down payment bracket.
Can you walk me through some examples of how that might work?
That way you can get the lower interest rate with the lower down payment, lock
that in, and then put the rest of your down payment money onto payment one
and then recast if you want to help lower the monthly payment a little bit.
Okay?
So you can do all this by getting a quote with us again.
WintheHouseYouLove.com for a free pre-approval.