Trust me, I get it. Society has taught us that this is the #1 question to ask your mortgage lender.
Unfortunately, it's not nearly that simple (just like everything else in the mortgage world!). As a result, people can often become frustrated when shopping for a home loan. They may worry they are getting "sold" or being misled.
There is a strong difference between what interest rate a mortgage lender can offer vs what interest rate a person may qualify for. A phone call to discuss the factors that affect what interest rate you may qualify for is important to have with your lender. A lender that provides you with an interest rate, without properly getting to know your unique financial situation first, will likely prove to be disappointing. To avoid potentially wasting your time and potentially being blindsided that you do not actually qualify for the rate you were quoted upfront, I would strongly urge you to work with a lender that asks qualifying questions upfront!
Here’s some of the factors that can play into what interest rate you may qualify for:
- Credit Score (important, but certainly not the only factor by any means)
- The type of property (detached, townhouse, mobile home, condo, etc.)
- The type of loan you are getting (Conventional, FHA, VA, USDA, etc.)
- The loan term (30 year, 20 year, 15 year)
- If the interest rate is fixed for the life of the loan or if it’s an adjustable rate mortgage
- When it’s an adjustable-rate mortgage (ARM), how long the fixed portion is (3 years, 5 years, 7 years, 10 years) before the rate can adjust
- What your debt-to-income ratio is
- If you require mortgage insurance, what type of mortgage insurance you are getting
- How much money you make in relation to the "Area Median Income"
- How much money you are putting down/How much equity you will have in the home
- How long you will be locking in the interest rate for
- If you are escrowing (paying your taxes and homeowner's insurance monthly as part of your mortgage payment)
- If you are getting down payment assistance
- The occupancy type (primary residence, second home, or investment property)
- If you have a 2nd lien on the property (for example a home equity line of credit)
- The loan purpose (purchasing, cash-out refinance, rate and term refinance, renovation, etc.)
- The number of units the home has
Be careful with online rates! They may mislead you!
I had a customer recently call their big national bank to apply for a mortgage. They had checked the rates online first, which seemed to be better than everywhere else. However, when they received a rate quote in writing, it was about a 1% higher than what the rate was online. They were absolutely furious. Who can blame them?!
**Banks and lenders publish their best interest rates online. Many times, their best interest rate(s) published are taking into account…
- “Discount points”. Discount points are paid by the buyer to the lender at closing in exchange for a reduced interest rate.
- Best-case scenario. This would mean your financial situation has the least amount of risk possible to the lender (looking at many of the bullet points above).
A friendly reminder to read the fine print! By law, banks and lenders are required to provide appropriate disclosures.
Key Takeaway: Unless the lender has a full loan application from you, can provide you an estimate in writing, and can lock in the interest rate they quoted that same day, I would not be completely confident in that rate and would proceed with caution.
Kait Spurrier
Sr. Mortgage Banker
NMLS# 1277963
O: (410) 794-4127
kspurrier@apexhomeloans.com
apexhomeloans.com/kait-spurrier
Topics: Mortgages for Millennials, Mortgages for Millennials: Mortgage Rates
