10 Things that Drive Your Mortgage Rate – Part 1
November 17, 2016
Let’s say you saw a low mortgage rate advertised and you decided to pursue it. But then you didn’t qualify. Are you wondering why?
Let’s look at some of the drivers behind this.
- You have less than stellar credit. This is all too common. See, lenders assume you have terrific credit. If you in fact have a low credit score, you’re in trouble. However, if your scores are really great, this can work in your favor.
- The property is a second home. The mortgage rate will be significantly higher if you aren’t occupying the property as your primary residence. Vacation homes and rentals are risky for lenders, and they adjust their rates to anticipate this risk.
- You have a townhome, condo, or manufactured home. These types of properties are subject to higher mortgage rates.
- The loan is big. Sometimes what happens is that loan amounts that are on the high end and close to the limit will translate to a higher mortgage rate. Try to stay under the limit, if at all possible, to get the lower interest rate.
- The loan is small. Conversely, if your loan is much less than the loan limit, you might pay more. Finding the right lender is the key here.
- You aren’t making a purchase. If you need to take out equity from the property, you’ll be hit. Lenders charge a premium for this. And your LTV will be limited when cashing out.
- The LTV is high. Typically, the way it works is: the higher your LTV, the higher your mortgage rate. Keep in mind that if you have a low-down payment, your mortgage rate will undoubtedly be higher. If you’ve been saving up for a rainy day, you are usually better off putting more down upfront. But it all depends on the threshold, so do the math and use the mortgage calculator to see what makes sense for you to put on the table at closing.
- You didn’t do your research. You really have to shop around and not take the first offer. They vary. Do your homework and look around. You really can’t gauge what you’re getting unless you have comparisons.
- It has to do with where you live. Unfortuantely, states have state-based pricing adjustments that can affect you. Look at other lenders.
- You own a lot of properties. Do you own a number of properties? This will affect you because you’re viewed as riskier regardless of your experience as an investor.