This guide covers things that determines your mortgage rates on home loans. Mortgage rates are the interest rates that you pay for your mortgage loan. Many factors determine what mortgage rates will be offered to you. John Strange, a senior loan officer at Gustan Cho Associates, explains how no two borrowers will get the same rate. Here is what John Strange says about pricing on mortgage rates:
Lenders mainly base pricing on mortgage rates on risk factors. The biggest factor that affect rates is the borrower’s credit scores. The lower the credit score, the higher the rate. Each borrower is evaluated by the lender to determine their risk level based on several factors, especially the credit score. Based on the risk factor of the borrower, the lender will price the rates accordingly.
Many borrowers have a tendency to shop mortgage rates from one lender to another. Mortgage rates might not be beneficial if you have less-than-perfect credit. Or have other factors such as high debt-to-income ratios, self-employed income, open collections, prior bankruptcy, foreclosure, short sale, or prior deed-in-lieu of foreclosure. In the following paragraphs, we will cover things that determines your mortgage rates.
What Are The Things That Determines Your Mortgage Rates
All mortgage lenders have credit score-tiered mortgage rate adjustments. For example, there will be things that determine your mortgage rates with pricing adjustments. Credit scores are the largest factoring things that determines your mortgage rates. In the following outlines, we will discuss the scoring levels as things that determines your mortgages. We have outlined the stages of credit scores on how lenders penalize borrowers with low credit scores as follows:
- 760 credit scores – no rate adjustment
- 740 credit scores – 0.25 point rate adjustment
- 720 credit scores – 0.50 point rate adjustment
- 700 credit scores – 1.0 point rate adjustment
- 680 credit scores – 1.75% point rate adjustment
- 660 credit scores – 2.5% point rate adjustment
- 640 credit scores – 3.75% point rate adjustment
- 620 credit scores – 4.5% point rate adjustment
Credit Scores Are Things That Determines Your Mortgage Rates
The bottom line is that the lower your credit scores are, the higher your mortgage rates will be. Credit scores are one of the most looked-at factors when a lender offers you a mortgage rate for your loan approval. A borrower with higher credit scores will get a better mortgage rate for his mortgage loan. Credit Scores Are Things That Determines your mortgage rates on home loans.
What Is Rental Verification
Rental verification is one of the most important factors in the mortgage approval process. However, the only way to use rental verification is by providing proof of canceled checks for the past 12 months of rental payments. If you have paid your landlord cash, it does not count. It needs to be a bank check or other forms of proof like copies of cashier’s checks, money orders, or bank wires. Cash paid receipt from your landlord or a letter from your lender does not count as rental verification.
If the property you are renting is managed by a licensed professional management company, a letter from the property management company can be used as rental verification. Depending on the lender, there may be a pricing adjustment on rental verification.
Those without rental verification might be paying higher mortgage rates than those with rental verification. Also, the debt-to-income ratio for borrowers with no rental verification can be lowered by more than 5% than those with rental verification. Another factor lenders consider with those without rental verification: they are concerned about the borrower’s payment shock. This is where they go from zero rent to a new mortgage payment. Many lenders will require rental verification to approve the borrower for manual underwriting on VA and FHA loans. If you are a renter and are planning on purchasing a new home in the future, make sure you pay your monthly rent by check and be able to provide 12 consecutive months of canceled checks. Low payment shock is a compensating factor.
High Loan-To-Value and Jumbo Loans
Things that determines your mortgage rates are credit scores and several other factors—jumbo loans in one of the things that determines your mortgage rates. Mortgage rates for Jumbo and Portfolio loans, such as condotel mortgage loans, will normally be higher than regular conventional mortgage rates. The things that determines your mortgage rates are the higher your loan-to-value is, the higher your mortgage rates will be. There is a big mortgage rate gap between an 80% loan-to-value mortgage loan and a 50% loan-to-value mortgage loan.