What Affects Your Interest Rate?
CREDIT SCORE
Your credit history is collected by 3 different credit bureaus. When you make an application for a home loan, the lender will get a credit score from each of the three credit bureaus. Most lenders use the average of the 3 scores to underwrite your loan. The higher your credit score, the better your credit grade. Most of the mortgage products on the market usually have a higher rate for lower scores and a lower rate for higher scores.
LOAN-TO-VALUE (LTV)
Most traditional loan products that offer the most aggressive rates require at least 5% down.
DEBT-TO-INCOME RATIO (DTI)
Traditional underwriting guidelines require very specific documentation to prove your income. That income must be enough so that your DTI is somewhere between 40% and 56% of your gross monthly income, and no more than 38% can go to your new housing payment.
ESCROW ACCOUNT
Traditional mortgages require that the lender set-up and maintain an escrow account to save and pay for your home owner’s insurance and property taxes. However, many borrowers would rather manage those funds themselves. This might add slightly to the rate.
CLOSING TIME FRAME
Interest rates are usually locked for 15, 30, or 60 days. The longer your lock-in period, the higher the interest rate will be. However, if you are building 60+ days out we have an incredible extended lock program that allows you to lock in with a protective capped rate – so if rates go up, you are protected. BUT if rates go down 30 days prior to your scheduled closing, then you can lock in at that lower rate … so it is a win-win!
WHO IS PAYING FOR CLOSING COSTS
Many borrowers have a limited amount of funds available to use in the purchase of their new home. What many do not consider is that the closing costs have to be paid in addition to the down payment. There are 3 options available to pay closing costs:
- You can pay them yourself out of pocket. This is the lower rate option.
- You can negotiate the seller to pay part or all of them for you. You will still get the lowest rate but the cost of the house will likely go up.
- Your lender can pay them for you and build these costs into a higher interest rate.
THE TYPE OF LOAN PRODUCT YOU CHOOSE
The longer the term, the higher the rate (15 year, 30 year, 40 year, etc.). Fixed rates are higher rates than Adjustable Rate Mortgages (ARMs). The longer the ARM fixed period, the higher the rate (3/1 ARM, 5/1 ARM, 7/1 ARM, etc.). If you add an interest only option, your rate will be higher. There are a number of other options that could add to the interest rate.
THE SIZE OF YOUR LOAN
The rates change depending on the size of your loan. The best rates available are for loans between $60,000 and $417,000. Loans less that $60,000 or greater than $417,000 have a higher interest rate because of the size of the loan.
THE TYPE OF PROPERTY
Rates may vary depending on whether you intend to live in your house (Owner Occupied) or if you plan to rent it out (Investment Property). Properties other than a single-family residence can also impact your interest rate.
1002 Raintree Circle Suite 100 • Allen, Texas 75013 • American Mortgage Company©. Company NMLS# 303719. All Rights Reserved.
“Figure: 7TAC §80.200(b)” “Consumers wishing to file a complaint against a company or a residential mortgage loan originator should complete and send a complaint form to the Texas Department of Savings and Mortgage Lending, 2601 North Lamar, Suite 201, Austin, Texas, 78705. Complaint forms and instructions may be obtained from the Department’s website at WWW. SML.TEXAS.GOV. A toll-free consumer hotline is available at 1-877-276-5550. The Department maintains a recovery fund to make payments of certain actual out of pocket damages sustained by borrowers caused by acts of licensed residential mortgage loan originators. A written application for reimbursement from the recovery fund must be filed with and investigated by the Department prior to the payment of the claim. For more information about the Recovery Fund, please consult the Department’s website at WWW. SML.TEXAS.GOV.”
