Adjustments…lets see what that brings to mind - Chiropractors, Income Taxes, too tight clothes? Nope, now we need to add mortgage interest rates to the list and these are not adjustments that you will make you more comfortable.

Fannie Mae and Freddie Mac “hold” and or “insure” 80% of all conventional mortgages and are Government Sponsored Enterprises’s that operate in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates. Therefore, they set up guidelines for the loan products and pricing. With all of the sub-prime fallout and mortgage volatility there is a new Risk Based Adjustment to the interest rates for borrowers based on their Credit Score.

Just for grins, let’s just make up two pretend borrowers - David has a credit score of 620 and Allen has a credit score of 680. Both are buying a $150,000 home and have 20% to put down. David’s principal and interest payment will be approximately $50 more per month with this new adjustment, he will pay an additional $18K over the life of the loan just based on this one adjustment. It is important to note that this is a new adjustment - all of the other adjustments are still hanging around. For example it they do not have the 20% to put down not only do you add another “adjustment” to increase the rate, but you will also need to add mortgage insurance to insure the lender which elevates the monthly housing payment.

I believe in the American Dream of home ownership very strongly (obviously) but I also believe in “common sense” lending. It appears that the pendulum has swung to the opposite end of where it was last year, but it is not all bad. People who have saved up for a down payment and managed their credit wisely deserve a better interest rate, it’s just that simple. These new guidelines are certainly keeping all mortgage professionals glued to their computers, but with the way the bond market has been behaving the last couple of days we really couldn’t go very far anyway!

So for all my friends that I see at the gym or in the grocery store and you ask “so what kind of interest rate could I get for such and such” I may need a little more information to give you a good answer.