Risk based pricing on mortgage loans; basically, that’s the name of the game. Stated income is out and asset verification is in. The interest rate you receive on your home loan is determined by the mortgage lender’s estimate of the probability that you as a borrower will default on the loan.
If it is determined that you are less likely to fail to pay, then you are rewarded with a lower interest rate. As I’ve said before, you can ask a bank about current mortgage rates or search for mortgage rates on the Internet, but nothing replaces the true picture painted by your history and your holdings in the hands of a mortgage professional. And any mortgage interest rate that sounds too good to be true definitely is, unless it is quoted with all the personal factors taken into consideration.
The top five things that impact your mortgage interest rates:
- Credit Score
- Loan to Value
- Loan Size in terms of dollars
- Property type being purchased (Condo, Single Family, Townhome)
- Closing Date
The number one thing to be cautious about are the ubiquitous unsolicited rate offers seen in the paper and heard on the radio. The odds are that you as the borrower will not get that advertised rate. Even if it is offered as low as 4.00% followed by a slew of exclamation points, you’ll probably have as much chance of getting that rate as you do scoring the 100” HDTV for $10 in the after-Thanksgiving blow-out sale! One person is going to win; it is just not going to be you.
At the end of the day, numbers don’t lie. Your numbers tell the story. Just bear in mind that there are compensating factors that can counterbalance some unfavorable aspects of your history. And when you review the overall equation it can sometimes tally up in your favor.