Mortgage Rates What Determines Mine?

Mortgage rates are falling and falling in a big way! Take for example today's 30 year fixed rate of 5.75%; pretty incredible right? You bet it is, however I thought I would educate this audience on what factors help determine your potential mortgage rate.

First, your overall credit score is critical in getting the best possible rate. Keep in mind that on a joint application Fannie Mae and Freddie Mac will use the lower of the two middle scores. For example; borrower A has scores of 708, 804, and 790 but the co-borrower has scores of 620, 608 and 595. Fannie Mae will use the 608 score for qualifying purposes. It is crucial to structure the loan the "right way" from the beginning to ensure you get the best possible product and rate.

Second, the loan-to value or (ltv) is also an important factor in determining your rate. For instance, a borrower putting 20% down will get a better rate than someone who is requesting a 100% loan or no money down. To add to this putting as little as 5% down will heighten your ability to get a better rate!

Third, your overall "financial portfolio" will help determine whether or not you get the best possible rate. What do I mean by this? Individuals who have savings accounts, investment accounts, 401K money and a low debt-to-income ratio or (dti) are putting themselves in a better position to qualify for a lower rate than someone who does not have the above.

What does all of this mean? Simple; the lenders risk will determine your rate. That is why someone putting 20% down, who has 800 credit and money in reserves will get a better rate than someone who is putting 0% down, has 610 credit and only $500.00 in reserves. The risk is greater on the later individual and therefore will get a higher rate than the first borrower. This does not mean that the later borrower will not get a great rate, it simply means that they will not get the best rate possible given their current financial situation and credit portfolio.

Brought to you by Professional Mortgage Group, Inc.
Your Columbia Missouri Mortgage Broker