You may be wondering why you have to shop around to get the best mortgage rates if the mortgage lenders see the same credit score. Mortgage rates are actually much more complicated than your credit score. Here's what you should know.
There Are Actually Different Types of Credit Scores
There are actually many different types of credit scores. If you get a free credit score, it's probably a general credit score. There are also specialized credit scores for things like mortgages, car loans, and new credit cards. They are all calculated differently, so one score could be higher or lower than another.
On top of that, there are several different credit score companies. In addition, each company may put out different versions of the same credit score. One bank may agree that the new version is more accurate and start using it, while another bank will stick with the old version.
Mortgage Lenders Use Internal Scores as Well
Mortgage lenders don't just go by your credit score. They also create their own scores similar to credit scores. This can include adjustments that the lender makes for specific items on your credit report, your banking history with them if you have one, the job that you have, and more.
The purpose of this score is to determine your risk and profitability to the lender using more information than just your credit score. Lenders that score you differently may offer different mortgage rates.
How Many Loans That Lender Has
Each lender can only give out so many loans at once. When they reach their limit, they need to sell loans to another lender, get more deposits to back the loans, or wait for people to pay their loans off.
A lender who is close to their lending limit might offer higher rates to control demand. A lender who has room to offer many loans might offer lower rates to win new borrowers.
What You're Buying
Some lenders may prefer to work with different types of homes. One lender might have had a lot of foreclosures in a specific neighborhood or with properties of a certain age. Another lender might have had good success with the same properties. In addition, older homes tend to get higher rates because there is more risk of something going wrong and the lender not getting enough value for the home if they have to foreclose.
To learn more about mortgage rates, contact a local credit union today.
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