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Posted almost 10 years ago

What's needed to determine your mortgage rate?

Here are the main areas that a lender will need to know to give you an accurate rate. If your lender quickly gives you a rate with out knowing or asking you the below you may be getting set up to be lied to.

So next time you go to your loan officer and ask whats the rate today you can be better prepared by knowing the factors below.

Its more important than ever to be working with a professional.

1) Loan Size - certain limits like 417k, 500, over 1,000,000, over 2,500,000 can determine your rate or cost adjustments so structure your loan accordingly

2) LTV (Loan to Value) - your first mortgage/loan divided by the market value or cost of the property (does not take into account other liens 2nds, 3rd etc)

3) CLTV (combined loan to value) - if you have first, second, or third liens it represents the total combined loans as a ratio to the market value of the property or cost of the property

4) Credit Score - FICO scores are used not Evantage scores, Beacon scores, and other scoring models. Residential financing is more score reliant while commercial is more credit history reliant

5) Credit History - your history of your credibility with past creditors

6) Escrows - third party account to hold taxes and insurance and sometimes repair costs from seller to do repairs post closing

7) Closing Date - the quicker or longer the closing date may affect how long you have to lock your rate for the longer the lock the more expensive in rate/cost the loan can be and the shorter the lock the better the rate/cost you can obtain

8) Loan Type - fixed, balloon, adjustable rate, interest only adjustable, etc... all these matter depending on your specific financing preferences, goals and plans

9) Property Type - different property types present different risks to the lender such as: construction materials, age, siding, roof type, and construction style have an effect on financing terms and options

10) Occupancy Type - owner occupant is preferred while non owner occupied properties are usually priced at an additional "premium," in cost/rate or require stricter terms

11) Residency - the lender will want to know your history of residences in the last 2 years to see how transient you are as it can be an indicator of your likelihood to repay. Some banks prefer local and immediate area clients versus out of town borrowers.

12) Available Assets - some reserves are needed depending on the loan product, lenders will use different terms like "reserves, liquidity, gross income reserves, etc," they are all similar

13) Asset/Income Seasoning - funds typically need to be time "seasoned," in their account for two full banking statement cycles, or funds/income need to be stabilized in order to use within a loan transaction

14) Co-borrowers - can increase pricing whether they are an occupant a co-borrower or non occupant and can affect your loan terms/price/rate

15) Debt to Income Ratio - ratio of total housing payment and "other," obligations to gross income

16) Housing Ratio - ratio of total housing payment to gross income

17) Employment Type - stable employment is preferred being self employed or risky industries can affect your ability to qualify if the income is not deemed stable etc

18) Employment History - typically 2 years is needed but more or less can affect your rate/terms/pricing/etc

19) Documentation - Full Doc loan Vs Stated Doc loan or limited docs can drastically affect your down payment, rate, terms and etc.

20) Recast Option - can be good or bad depending on rate and terms of your loan as this can definitely affect your cash out flow each month unless planned accordingly

21) Prepayment Penalty (PPP) - lenders may require this in order to maintain their interest yield in case you pay off your loan early. Some lenders may offer no PPP for an added premium in cost or rate. This cost can affect your plans for buying and selling a property

22) Gifts - certain programs allow more or less gifts and non owner/rental's typically do not allow gifts

23) Cash out refinance - cash out's have adjustments to price/rate so pricing a purchase and a rate/term refinance is not an apples to apples comparison. So if your neighbor gets a lower rate on their purchase its normal compared to your cash out refinance as some lenders can perceive a cash out as more risky

24) Debt Coverage Ratio - more for commercial, a measure of your net operating income divided by your mortgage payment (principal & interest) to ensure there is enough income in the financials to make the lender comfortable with lending to you

25) NOI - net operating income is the income left over after you take gross income minus vacancy projections and operating costs. NOI does not take into account financing costs and assumes an all cash purchase


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