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Credit and Payment History
Making timely mortgage or rent payments is
very important. Paying late just once by 30 days or more can
affect both the loan and the interest rate offered you. Late
payments on credit cards, car payments and other bills can also
affect your interest rate and loan amount.
Debt To Income Ratio
Your monthly debt obligations and income
get converted to a
debt-to-income ratio when you apply for a loan. Lenders often
have a maximum ratio percentage that they will allow a borrower to
have. Often, the higher the ratio the higher the rate offered.
Loan Amount vs. Property Value
Lenders often refer to this comparison as your
loan-to-value (LTV). Because more equity or money down
decreases the risks involved with lending, a lower LTV may result
in a lower rate.
Property Type
One of the first questions a lender asks involves the type of
property you are buying or refinancing. Common types include
single-family homes, condominiums, manufactured homes, and
multi-family homes. While loans may be available for many
different property types — your interest rate might be lower for a
single-family home than for a multi-family home. It all boils down
to the risk involved with writing loans on a particular property
type. The less risky, the better the rate.
Occupancy
Another question lenders frequently ask concerns occupancy type.
Whether your loan is for the home you live in full-time, part-time
or rent to others affects the interest rate you are offered.
Generally, owner-occupants who live in their homes full-time enjoy
the best rates, followed by vacation homeowners and property
investors.
Loan Amount
Sometimes the amount of money you borrow makes a difference in
your interest rate. Just as buying in bulk might reduce the price
paid per unit, borrowing larger sums of money might result in
discounted interest rates.
Reduced Paperwork
Many lenders offer reduced paperwork options. While this option
may increase the convenience of getting a loan for the consumer,
it may also increase the risks for the lender. To balance risk
with convenience, reduced paperwork often involves a slightly
higher rate.
Property State
Different states have different regulations and requirements that
result in varying business costs. For lenders, these costs are
frequently passed to the consumer in the form of an interest rate.
Varying costs mean varying interest rates across the nation.
Points
Borrowers can often receive a lower rate by paying extra
points. While the discounts to the interest rates may vary,
each point paid typically equals 1 percentage point of the total
amount of the loan. While this option increases the upfront costs
for a mortgage, it lowers the interest rate.
Market Forces
The Federal
Reserve Board has the power to raise and lower interest rates.
This ultimately affects the interest rates charged to consumers.
For adjustable rate mortgage loans, interest rates are tied to an
index. Variations in an index might affect the interest rate
of a particular loan both for the initial rate offered and for the
interest rate paid over the course of the loan.
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