April 14, 2024
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Linking Northern and Central NJ, Bronx, Manhattan, Westchester and CT

What are interest rates dependent on? Many times one person will buy a house and get one rate with one lender, and his friend will close on the same day with a different lender and get a very different rate. Is it only because one lender has better rates than the other?

Interest rates in each case are based on many factors aside from the specific bank that is lending the money. Credit score is a major factor, but aside from that there are many other factors to consider when comparing two loans with each other. The LTV (Loan to Value), term of the loan (30 or 15 year, etc.), loan type (primary, investment, etc.) and how long the rate lock is, are the main things to keep in mind. Aside from that is the income situation you are considering to use to qualify, like for example, if you need to use income that is tax exempt and therefore not reported on a tax return. Some lenders who generally offer better rates will not accept this kind of income; this will affect the rate as it limits “the playing field.”

Let’s take two scenarios to compare based on one investor’s current rates:

Purchase of a primary residence

Cash-out refinance, investment property

Credit score 720, 30-year loan

Credit score 750, 30-year loan

80% LTV, 30-day lock

75% LTV, 30-day lock

4.5% No points

4.875% No points

 

Rates are basically based on the risk factor, so all these variables play a role in determining that. So to start with, a primary residence has a lower rate than an investment for the simple reason that a person will try much harder to make the payments on his own residence versus an investment. Aside from that, a refinance that is a “cash-out” will usually be a little higher than a refinance that is a “rate and term” as the fact that you are taking out more debt will warrant a higher rate.

As discussed in previous articles, any credit score below 740 will generally add something to the rate, but there are scenarios where it might not make a difference like, for example, with a 15- year loan. Since the rate is much lower because of the shorter term of the loan, sometimes the scenario is strong enough that the lower credit score does not have an effect. The Loan to Value is also a factor, but generally speaking there is little/no advantage to having a 35% LTV over a 55% LTV; the main thing is for it to be under 80% on a primary and under 75% on an investment. Another factor to consider is if it’s a 2-family house; there is usually a bump to the rate because of that.

People commonly see rates published online and think that that rate would apply to their specific scenario. This is usually not the case, because if you read the fine print or click for more details you will usually see that the published rate is only for the truly perfect scenario.

Eli Garfinkel of Funding Resources Mortgage Company is an experienced and reputable loan officer. With a list of extremely satisfied clients, Eli specializes in great customer service and dealing with complex cases. Eli is available to answer any mortgage questions, without any obligation. Eli can be reached by phone or text at 732.278.6526 or via email [email protected] or in the office at 732.364.7373 ext 22.

By Eli Garfinkel

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