Understanding What Affects Your Interest Rate

When applying for a mortgage, one of the largest concerns is interest rates. One question that may come to mind is, why are rates higher for some loan programs and not others? Or have you ever seen a rate advertised only to find that it does not apply to you? Being that the mortgage business is competitive, it is safe to assume that lenders advertise the lowest rates available, for which only the most generic transactions apply. It may help you to be aware of the following issues that, once immersed in the loan process, can influence your interest rate.

Typically it is very difficult to place a borrower in an appropriate program until a credit report is run. This gives the lender an accurate picture of your credit history, thus enabling them to place you in a suitable program.

The type of property you are looking to finance can have a direct connection to your interest rate as well. Again, the rates that you see advertised most likely pertain to primary residences, single unit properties. Any type of property that deviates from these – for example investment/rental units and multi-unit dwellings – can result in a slightly higher interest rate and/or the points tied to that rate.

Lastly, be advised that any additional "feature" associated with the specific loan program in which you are interested will be sure to alter your rate and/or points. For example, any program that requires minimal documentation commonly known as No Income Verified, No Ratio or EZ Doc loans may not require you to supply tax returns or verify your income. However, they are available at a higher price, so to speak.

The philosophy is to make a variety of programs available to fit borrower's exact needs. Borrowers are far more diversified today than they were ten years ago, thus the programs are following suit.

When purchasing a home, it can be advantageous to get pre-approved for a mortgage.

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