Everyone wants that lowest advertised mortgage rate. They often get upset when they don’t. Not realizing that there are several factors that impact mortgage rates and a change with any of those factors can impact what rates they qualify for.
The other day I got a call from one of my clients who wasn’t happy that I quoted him 4.125%. He said that I gave his friend 3.625% and how come he couldn’t get the same rate. I had to explain to him all the things that were different with his loan compared to his friend’s.
I am listing those and other factors that could impact the rates/fees you are quoted. Some of these factors may not have an impact on government loans like FHA or VA loans, but would impact a conventional mortgage.
Credit Score
For conventional mortgages 740+ is considered an excellent score. Any score under 740 can result in higher cost or fees.
Loan to Value Ratio (LTV)
Higher LTVs mean higher rates. So if you are getting a loan with as much as 40% down payment, you should get better rates than someone who only has 10% down.
Loan Program
Fixed rate mortgages would typically have higher rates than an Adjustable Rate Mortgage (ARM).
Occupancy Type
A primary residence or second home would get you better rate than an investment property.
Property Type
A condominium with less than 25% down payment will have a higher rate than a single family residence.
Loan Amount
The conforming loan limit is $417,000. But in some high cost areas like San Jose, CA the loan limit is $625,500. But the rates are higher on loan amounts over $417,000.
Subordinate Financing
If you are getting a second mortgage along with the first, you may end up paying a higher rate on the first.
As always, consult with a reputed loan officer to understand all your options. You should work with a loan officer who simply does not quote you rates, but looks at your financial goals and recommends you a suitable loan program and rate.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
