What accounts for the spread between the 30 year and FHA/VA?

Question

Is it credit score? Do mortgage rates for FHA/ VA not change with credit score, while the standard 30 year does? Just trying to understand how the 3 relate to one another

Javier Mercado · Answer

It all boils down to risk. FHA/VA loans are backed by the government up to a certain percentage, so in the event of default the lenders are guaranteed to receive a portion of the principal back.

Conventional loans have “adjustments” based on the borrowers criteria & property. You’ll see the most movement in different scenarios on conventional loans (credit, LTV, first time home buyer, etc), where government loans don’t fluctuate much on the spectrum.

Jay Hurst · Answer

@Sean Bramble FHA is much less sensitive to lower credit scores then conventional loans. FHA is designed for lower down payment, lower credit scores. You will notice a HUGE difference in pricing when you get down to the mid 600's for example. The LLPA for conventional loans stair step down the lower the score, where FHA does not do this. (some lenders do but FHA do not)

Fannie Mae LLPA matrix

Sean Bramble · Answer

AHH I get it now. The banks don't see much default risk bc the govt insures it. So minimal fluctuation w/ credit score. Thank you!

and thanks to everyone!

What accounts for the spread between the 30 year and FHA/VA?

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