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How much is a typical rate spread?

I am interested in purchasing a 145k home using a 30year FHA with 3.5% down. The loan officer sent me a GFE with a note rate of 4.25% and APR of 5.735% I know a portion of this is because of the MIP. It seems as though the rate has been marked up excessively. i understand the loan officer needs to make some money as well and she is being very helpful but I don't want to overpay.
  • December 09 2013 - VCU
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Answers (10)

It seems the rate is OK to me, although you should be able to find lenders who are still under 4%. 
If you are already under contract to buy a home, then it is probably not worth switching at this point. The difference in your monthly payment would only be $20 less for a rate of 4.0%.   $30 less for 3.875%

On the other hand if you are still shopping, then a switch might be something to consider. 

Maybe they quoted you 4.25% to get you preapproved, but have not locked your rate yet.    
  • December 09 2013
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Thanks for the info Justin. As stated earlier I am most certainly willing to pay the loan officer I just don't want to overpay. I am in sales myself and I surely understand that logic behind getting what you pay for but I always make sure I am providing a competitive price and still provide exceptional service. I just want to make sure I am paying a fair rate, I most certainly wouldn't choose another lender if she is just a quarter point higher. It seems from all the info I gathered here what I was quoted seems right.
  • December 09 2013
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Looks fairly normal to me. It's always going to be much higher than the note rate. With FHA increasing MIP so much, there's really no way around it unless you want to go conventional. If the seller is paying all closing costs, sounds like the APR really doesn't matter that much. If you are comfortable with the monthly payment and $ down, no need to second guess yourself at this point. 

The main thing I tell my customers is to be comfortable with your Loan Officer and their company. I've done deals where I'm 0.25% higher than other companies but my borrowers want to work with me because they feel comfortable. I completely understand if you're looking for the lowest rate but you need to be aware that you get what you pay for. Someone being compensated higher for you loan will certainly work harder than one who is compensated less. 

A couple questions to ask yourself and see if your current LO (Loan Officer) is covering:
1. Are all of your questions answered and do you feel comfortable?
2. Is closing on time important to you?
3. Is it important for your Loan Officer to return calls and emails promptly?
4. Does your Loan Officer sound like he/she knows what they are talking about?
5. Does the company/LO you are working with have good reviews?

Answering all of these questions will let you know whether or not to go with your current company. One additional thing to keep in mind is FHA monthly mortgage insurance will be with you for the life of your loan. Until you sell or refinance, you will have to pay the monthly mortgage insurance.

Good luck!
  • December 09 2013
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I'm definitely not trying to get past mortgage insurance. Just want to make sure the Loan Officer isn't adding anything unnecessary
  • December 09 2013
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Use the "mortgage" link at the top of the page, and type in your criterion to get free anonymous quotes within minutes from robo-quoters.  You can then see what kind of range you might expect.

Rates change frequently, and the Dodd/Frank Act doesn't allow them to just set mark-ups arbitrarily.  The markups are fixed for each lender/loan officer, for a period of months until they change it.

Some of the extremely low robo-quotes may not actually be available, though Zillow does use a mystery shopper program to try to make sure the robo quoters are honoring their quotes.  In any case, it is usually a good idea to throw out the lowest and highest quotes.

As mentioned by others, there is no way to avoid mortgage insurance in the %down that you have available.  That will need to be paid for one way or another.
  • December 09 2013
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My middle score is right at 640, the lender isn't providing any credits and the seller is paying all closing costs
  • December 09 2013
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4.25% is about the correct rate for a 30 year FHA loan with no points.  The MIP costs on FHA loans are truly ridiculous, anyone who qualifies for a conforming loan is much better served to pursue one of those.  Were you aware that you can get a Fannie Mae conforming loan for 5% down AND the 5% can be a gift from a family member if you don't have it? Feel free to shoot me an email or call if you have any questions.
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"It seems as though the rate has been marked up excessively"

The spread between the Note Rate and The APR Rate has nothing to do with the rate being "marked up". It has to do with the fees being charged in conjunction with the loan. FHA loans will have the highest spread, of nearly any product, between the two rates.

In my humble opinion, it seems like your quoted rate may have been "marked up" a bit more than necessary. You would have to provide a little more info to determine if this is accurate. Your credit scores, and whether or not any of the Lender funds were used to cover closing costs (Lender credits), would help us determine if the 4.25% is competitive.
  • December 09 2013
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90% of it is because of the mortgage insurance both up front and monthly since it is in place for the life of the loan.  Depending on your credit scores and any lender credit being offered, that may or may not be a fair offer.
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If you remove the MIP you're likely below a 1% rate spread-sounds about right to me.
  • December 09 2013
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