One of the most common questions everyone has when financing a home, whether it is for refinancing or purchasing, is what is my interest rate going to be? It’s a fair and simple enough question with many possible answers. There are many factors that go into determining what your interest rate will be on your mortgage loan. Some of these factors are:
1. Credit Score. Your credit score is probably the most important factor in determining your interest rate. The higher your credit score, the lower your interest rate will be. The best rates are when your middle FICO is 740 or higher.
2. Refinance. If you are refinancing, are you just changing the rate and term or is this a “Cash-Out” refinance? Cash-Out refinances in particular have a higher risk for the lender, so the interest rate will be higher.
3. Loan to Value or LTV. The loan to value is the loan amount compared to the appraised value of the home or the purchase price, whichever is lower. When purchasing a home, the more money you put down, the lower the LTV, which results in less risk to the lender which translates into a lower interest rate for you. With a refinance, the same general rule applies: The lower the LTV, the lower your interest rate.
4. Loan Size. The amount you want to borrow can affect your interest rate. The lower the amount borrowed, the higher the rate. If you want to borrow less than $100,000, expect to pay a higher interest rate than a borrower who has a $200,000 loan.
5. Type of property. Single family or multi-family? Single family homes have the lowest risk to lenders and therefore have the lowest interest rates. Multifamily homes and condos have statistically higher default costs for lenders, which potentially means a higher rate than a single family home.
6. Occupancy. Owner occupied properties have lower interest rates than non-owner occupied or investment properties.
7. Program Type – Conventional, FHA, VA or USDA. Oddly enough, even though government backed programs like FHA, VA, and RD require borrowers to pay mortgage insurance and other fees, their interest rates can sometimes be even lower than Conventional loans. And with Conventional loans, the more you put down, the lower your rate will be.
Get a Rate Quote
Merrimack Mortgage Company offers some of the lowest interest rates in the country…and in NH. When you are ready for a quote on the lowest possible interest rate you qualify for, get a mortgage rate quote here or contact me, Charley Farley at 603-471-9300.