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What Determines Mortgage Rates On Home Loans

Gustan Cho Associates
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What Determines Mortgage Rates On Home Loans

This BLOG On What Determines Mortgage Rates On Home Loans Was PUBLISHED On July 10th, 2019

What Determines Mortgage Rates
Gustan Cho Associates

What Determines Mortgage Rates:

  • The lower your mortgage rates are the lower your monthly mortgage payments are
  • The lower the rates the less you pay in mortgage interest over the course and term of your mortgage loan
  • Credit Scores are the biggest factor in what determines mortgage rates
  • However, there are various factors on what determines mortgage rates
  • You can do all of the shopping you want with various mortgage companies but if you do not meet these factors you will not get the best rates

In this article, we will discuss What Determines Mortgage Rates On Home Loans.

How Are Mortgage Rates Determined?

How Are Mortgage Rates Determined?

Mortgage rates are quoted based on the risk of the borrower and the risk of the property.

  • A higher credit score mortgage loan applicant will get a better mortgage rate than a lower credit score mortgage loan applicant
  • This is because lenders classify higher credit score borrowers as less risky borrowers
  • A higher down payment and lower loan to value will get a lower mortgage rate
  • This is because they have more skin in the game
  • The mortgage lender has less risk in the event if the property were to go into foreclosure

We will be discussing factors that determine mortgage rates.

Credit Scores Is What Determines Mortgage Rates

Credit Scores Is What Determines Mortgage Rates

Conventional mortgage rates are very sensitive to credit scores.

  • The higher the borrower’s credit scores are, the lower their conventional mortgage rates are
  • For a borrower to get the best conventional mortgage rates, they would need credit scores north of 740 FICO plus
  • Any credit scores of 740 FICO or under will get pricing adjustments to the best possible conventional mortgage rates

Borrowers with credit scores of 620 FICO (Minimum credit score to qualify for a conventional loan) will get the highest mortgage rates.

Loan to Value Ratio (LTV) Is What Determines Mortgage Rates On Conventional Loans

Loan to Value Ratio (LTV) Is What Determines Mortgage Rates On Conventional Loans

The higher the loan to value is, the higher the mortgage rates will be on conventional loans.

  • To get the best conventional mortgage rates, you need to put a 25% down payment
  • Home buyers who put 25% down payment will get a lower mortgage rate than a buyer who puts down a 3% down payment on a home purchase
  • The reason for this is because a lender has lower risk on a borrower who puts more money down on a home purchase

The loan to value pricing adjustments only affects conventional loans and not government mortgages.

Mortgage Loan Program Is Another Factor On What Determines Mortgage Rates

Mortgage Loan Program Is Another Factor On What Determines Mortgage Rates

The longer your mortgage term is, the higher your mortgage rates will be.  A 15 year fixed rate mortgage will have a lower mortgage rate than a 30 year fixed rate mortgage loan term. Adjustable Rate Mortgages have lower mortgage rates than fixed rate mortgages.

Occupancy Types Affect Mortgage Rates

Occupancy types will have an impact on your mortgage rates.  An owner occupant and/or second home will have lower mortgage rates than an investment home.

Property Type Impact Mortgage Rates

The type of property you purchase will have an impact on your mortgage rates.  A condominium is considered a riskier mortgage loan than a single-family home. Mortgage rates on a condominium loan will be higher than a mortgage loan on a single family home.

Loan Amount Impact Mortgage Rates

The mortgage loan amount will have an impact on mortgage rates.

  • Smaller loan amounts of less than $100,000 will have higher mortgage rates than loan amounts of $200,000
  • Also, conforming loan limits are at $484,350
  • Many counties in California are located in high-cost areas
  • The conventional loan limits may be $726,525
  • High-cost areas in California, as well as other parts in the country where the loan amount exceeds the conforming limits of $484,350, will have higher mortgage rates

Subordinate Financing Impact Mortgage Rates

If you decide to get a second mortgage the same time you get a first mortgage, you may get higher mortgage rates on your first mortgage.

For more information on this topic and/or other mortgage-related information, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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