Monday, October 09, 2017 / by David Veenstra
Kalamazoo Real Estate - When you see the rates that lenders publish on the web and in print, you should recognize that the rate you will get may be different than the published rate. The actual rate a borrower pays is based on a
number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.
When a lender checks your individual situation they will determine risk factors. The higher they perceive the risk to be that the loan may not be paid back, the higher proportionately the interest rate will be. If the risk becomes too high, the loan will not be approved.
- Loan amounts – Fannie Mae and Freddie Mac create pricing guidelines for loans. Loans under a certain price limit are called "conforming loans". Loans that are above those price guidelines are considered "jumbo loans" and generally have a higher interest rate.
- FICO score – the lowest interest rate is reserved for those with the highest credit (FICO) score; the lower the credit score, the higher the rate the borrower will pay.
- Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than borrowers buying property to be used as second homes and investment properties.
- Loan purpose – borrowers who are purchasing a house generally have the lowest interest rate and those who are refinancing for better rates and terms often receive rates that are slightly higher. An even higher rate might be charged for refinancing and taking cash out of the property.
- Debt-to-Income Ratio – lenders look at a borrower’s monthly liabilities and divide that number by their gross monthly income to develop a ratio that helps lenders to assess the borrower’s ability to repay the mortgage. (For more info about this, click here.)
- Property Type – some types of property are considered higher risk than others and so this could adversely affect the rate.
- Loan-to-value – lenders also look at the percentage of the loan requested to the appraised value of the property. The lower the amount requested compared to the appraised value will generally lower the interest rate. (For more info about this, click here.)
Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. It is essential for home buyers to be pre-approved before beginning to look at homes. As a responsible home buyer you need to have all the information needed to make sound financial decisions. Understanding what you are qualified to purchase, how much your interest rate will be, how much money you need to have down to purchase and the type of loan you qualify for are important for you to know. Also, the Veenstra Team promises sellers, and most sellers require, that we will only show the home to pre-approved buyers. Since, just like with REALTORS, you will find a huge disparity in levels of customer service, all lenders are also not the same. If you have not yet been pre-approved, we would like to recommend a trusted mortgage professional to you so you can get get advice and get a pre-approval letter. Call The Veenstra Team at 269-350-5514 and we will be happy to provide a name or two to you.
We want you to make the best decisions! We also have some secret strategies that allow our home buyers to win the opportunity to purchase more often as compared with other buyers. We would like to share those tips so that you are well prepared and in the strongest negotiating position to purchase a home at the best possible price.
You can reach the Veenstra Team at 269-350-5514. We look forward to serving you.