Have you ever received an interest rate quote or
seen a published rate on the Internet only to find out later that you’re not offered the same rate when you go through the loan application process? That’s because there are many variables in determining rates for individual buyers and the rate you’re offered depends on your own situation.
Usually when you see a published rate quote, it is the rate offered to the most highly qualified borrowers for a particular type of loan for a particular type of property, often referred to as a "best execution" rate. Those rates are typically for someone with an 800-plus credit score, for a conventional loan with a 25 percent down payment, on an owner-occupied, single-family residence. Also, the borrower may be required to pay a discount rate (points) to get such a low rate.
Lenders use some two dozen criteria to determine interest rates for individual borrowers, which include:
1. Loan Size
2. LTV (loan-to-value)
3. CLTV (combined loan-to-value)
4. Credit Score
5. Credit History
6. Escrow Preference
7. Closing Date
8. Loan Type
9. Property Type
10. Occupancy Type
11. Residency
12. Available Assets
13. Asset Seasoning
14. Co-borrowers
15. Debt Ratio
16. Housing to Income Ratio
17. Improvements Needed
18. Employment Type
19. Employment History
20. Documentation Available
21. Transactional DI
22. Re-castable (adjustable)
23. Relocation
24. Seller Contributions
25. Gifts
26. Cash-out
While it would be difficult to explain all of the criteria in great detail in this post, feel free to contact me for more information. Any one of these factors could affect the interest rate or loan for which you qualify or that is appropriate for your situation.
For example, the absolute lowest interest rate may not be available to you if your credit score is below 780, you are seeking to buy a manufactured home or condo unit, you have less than 20 percent for a down payment, you need a loan below the minimum or over the maximum amount, or you are buying an investment rental property.
That’s why your loan officer asks you a myriad of questions before giving you an answer when you ask for a rate quote. If you are simply rate-shopping without getting the whole story, particularly as it applies to you, you could be headed for disappointment and frustration. So, the next time you ask for a rate quote, make sure to specify that you want the best possible rate available for your qualifications and objectives. To get the answer to that question, of course, will take you and your mortgage loan officer a bit more time, but it in the end you will receive a more realistic quote.
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