Your credit history is collected by 3 different credit bureaus. When you make an application for a home loan, the lender will get a credit score from each of the three credit bureaus. Most lenders use the average of the 3 scores to underwrite your loan. The higher your credit score, the better your credit grade. Most of the mortgage products on the market usually have a higher rate for lower scores and a lower rate for higher scores.
Loan-To-Value (LTV) Most traditional loan products that offer the most aggressive rates require at least 5% down.
Debt-To-Income Ratio (DTI)Traditional underwriting guidelines require very specific documentation to prove your income. That income must be enough so that your DTI is somewhere between 40% and 50% of your gross monthly income, no more than 40% to 50% can go to your new housing payment and all of your other monthly debts. However, many borrowers today don’t meet this guideline for various reasons.
Escrow Account Traditional mortgages require that the lender set-up and maintain an escrow account to save and pay for your home owner’s insurance and property taxes. However, many borrowers would rather manage those funds themselves. This might add slightly to the rate.
Closing Time Frame Interest rates are usually locked for 15, 30, or 60 days. The longer your lock-in period, the higher the interest rate will be. However, if you are building 60+ days out we have an incredible extended lock program that allows you to lock in with a protective capped rate – so if rates go up, you are protected. BUT if rates go down 30 days prior to your scheduled closing, then you can lock in at that lower rate … so it is a win-win!
Who Is Paying For Closing Costs Many borrowers have a limited amount of funds available to use in the purchase of their new home. What many do not consider is that the closing costs have to be paid in addition to the down payment.
There are 3 options available to pay closing costs:
- You can pay them yourself out of pocket. This is the lower rate option.
- You can negotiate the seller to pay part or all of them for you. You will still get the lowest rate but the cost
of the house will likely go up.
- Your lender can pay them for you and build these costs into a higher interest rate.
The Type of Loan Product You Choose The longer the term, the higher the rate (15 year, 30 year, 40 year, etc.). Fixed rates are higher rates than Adjustable Rate Mortgages (ARMs). The longer the ARM fixed period, the higher the rate (3/1 ARM, 5/1 ARM, 7/1 ARM, etc.). If you add an interest only option, your rate will be higher. There are a number of other options that could add to the interest rate.
The Size of Your Loan The rates change depending on the size of your loan. The best rates available are for loans between $60,000 and $417,000. Loans less that $60,000 or greater than $417,000 have a higher interest rate because of the size of the loan.
The Type of PropertyRates may vary depending on whether you intend to live in your house (Owner Occupied) or if you plan to rent it out (Investment Property). Properties other than a single-family residence can also impact your interest rate.