What's your Best Interest Rate?

By
Mortgage and Lending with Cardinal Financial Company, Limited Partnership NMLS 365858

Everyday, I have potential clients bombard me with that simple question.  What's your Best Interest Rate?  When I explain to them that I need a little more information, the first thing they say is that I have great credit.  They fail to realize that's not the only factor.  While the credit score is a very big part of getting a very competitive rate, keep in mind that this is not the only factor in determining the interest rate for your loan.  All rates are based on a combination of several "Risk Factors".  The lower the risk of the borrower, the lower the rate.  Listed below are the factors that affect how low of a rate you will receive on your next loan.

  • Credit Score/Credit
    • The biggest determining factor of the rate you will get.  Mortgage companies, such as FinanceMyHome.com, use the middle score (the 2nd highest score from the 3 main credit repositories:  Equifax, Experian, and TransUnion) and not the average.
    • Rates are generally graded in several different tiers.  They are:
      • 740 and above - EXCELLENT
      • 700 - 739 - Very Good
      • 680 - 699 - Good
      • 660 - 679 - Acceptable
      • 640 - 659 - Fair
      • 620 - 639 - Poor
      • 619 & below - Very Poor
    • The lower the tier, the higher the risk.  If your score's too low, certain programs and loans are unavailable or are offered only if your other risk factors are low.
    • Judgments, late payments, disputed accounts, and other recent derogatory accounts can disqualify you from obtaining a loan even if your score is high.  Depending on the program and lender you select, if a certain amount of time has passed, many lenders will ignore the past issues you may have had.
  • Loan Amount/Equity
    • The more equity you have (be it existing equity in your home or your down payment) the lower your risk.
    • In some cases, if you do not have enough equity or down payment, certain programs are unavailable to you or you will have to pay Mortgage Insurance.
  • Income and Debt Ratios
    • Your Debt to Income Ratio (how much your monthly debts are compared to your monthly income) makes a huge difference in the ability for a lender to lend.  If your debt load exceeds certain thresholds, you may not qualify for a loan.
  • Term and Program
    • Depending on the loan you select (FHA, VA, Conventional, etc.) your limitations will vary.  Government loans generally have less stringent requirements and offer more flexibility when it comes to risk factors.  Conventional loans are very specific on what you can and cannot do and rarely deviate from the standard guidelines.  Furthermore, depending on the lender, Government loans offer higher tolerances when it comes to higher ratios and lower credit scores and equity.
    • Since shorter terms reduce the overall risk of a loan, many 15 year and 10 year loan programs come with lower rates.  However, the higher monthly payment deters borrowers from going with this option.
  • Closing Costs
    • Origination, discount points, and lender fees can determine how low you can get your rate.  If you prefer to buy down your rate by purchasing points, make sure that the money you are spending equates to a substantial savings over the course of your loan.

 

I hope this helps you in understanding on how rates are determined.  I get many calls from potential clients that want me to quote them a rate.  However, as you can there's more than one aspect to determine rates.  If you deal with someone who's willing to quote you a rate without getting a complete application and knowing the bare minimum, you are doing yourself a disservice.  More than less likely, the rate he/she quoted you will not apply to your situation.  The lowest rate isn't always what you can qualify for.  But if you do your homework you'll be sure to get the best rate you qualify for.

If there's anything I can do to help with your current purchase or refinance, please don't hesitate to contact me.

 


FinanceMyHome.com

James Jeter | Mortgage Loan Originator | NMLS #365858

12005 Ford Road, 8th Floor Dallas, TX  75234
O: 866-277-3088 Ext. 3361
D: 972-629-3361
C: 214-556-7609
F: 866-249-2231
E: jjeter@financemyhome.com


Anything posted on ActiveRain and Localism are
my personal views and they do not reflect those of
FinanceMyHome.com, REMN, Inc. or it's affiliates. 
FinanceMyHome.com is an Equal Housing Lender.
This is not a commitment to lend.  All loans are subject
to specific conditions, guidelines, and/or stipulations. 
Please contact lender for details.


Equal Housing Lender


Comments (8)

David Barnes 303.929.8450
Reverse Mortgage Funding - Denver, CO
NMLS # David 501351

James,

Wow, nice to know that we are not the only ones who get this question. It really concerns me when that is the lead in question from a caller, especially if they are one of our agent referrals. Most simply do not understand that it really is more complicated than just "here is the best rate". Sometimes I will just give them the "best" rate then start asking the some questions to "see" if they would get that rate. My partner and I do not sell rate, it is so much more than that and those that choose to go with the "best" rate guy usually end up having an issue.

What do you think?

David

Sep 29, 2011 06:42 AM
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

James (and David) -- Those seeking the lowest rate, are in our manager's words, "looking for the biggest liar" - which is why as James points out - there are usually problems down the road when they choose to go with that lender.  We also try to educate our clients and potential clients so they recognize the danger they are dealing with in this scenario.

Sep 29, 2011 08:44 AM
James Jeter
Cardinal Financial Company, Limited Partnership - Carrollton, TX
James Jeter

@ David - I'm sure everyone gets that.  With radio ads and internet banners touting (unrealistic) rates, many shoppers are just trying to get what they see advertised.  It seems to me they always fail to read the fine print (30% equity, credit score of 740, loan amount of $350,000, etc.).  I ask them where they saw this rate and visit the site they state and point out the assumptions.  Doesn't always work to my benefit, but I do what I can.

Sep 30, 2011 05:44 AM
James Jeter
Cardinal Financial Company, Limited Partnership - Carrollton, TX
James Jeter

@ Steven - Sometimes I just want to come out and say that you've been lied to.  I guess having a conscience and wanting to NOT break the law leads me to shoot straight with my prospects.  Unfortunately, even if the prospect goes with the "liar" their pride keeps them from coming back and they head down the street to someone else.  I guess they're afraid to hear "I told you so".

 

Sep 30, 2011 05:47 AM
Wayne Johnson
Coldwell Banker D'Ann Harper REALTORS® - San Antonio, TX
San Antonio REALTOR, San Antonio Homes For Sale

James-This is a great summary. Lenders are taking a holistic approach to credit evaluation and your chart helps to descrie it nicely.

 

Oct 01, 2011 02:07 PM
James Jeter
Cardinal Financial Company, Limited Partnership - Carrollton, TX
James Jeter

Wayne - Thanks!

Oct 04, 2011 06:35 AM
Larry Arnason
Arnason Mortgages - Calgary, AB

Great article!  We have the same challenges in Canada, not everyone qualifies for the same rate and the same client can get different rates from different lenders.  We publish our best rates but we also try to educate our clients to let them know that every deal is unique.

Oct 12, 2011 05:11 AM
James Jeter
Cardinal Financial Company, Limited Partnership - Carrollton, TX
James Jeter

@ Larry - Thanks!  Sometimes all you can do is educate them.  What they choose to do with that knowledge is still up in the air.

 

Oct 18, 2011 06:58 AM