Mortgage lenders everywhere typically offer the same set of mortgage programs with both conventional loans underwritten to Fannie Mae and Freddie Mac guidelines to government-backed loans such as VA, FHA and USDA programs. And while all lenders compete for your mortgage with the best combination of interest rate and closing costs, there are some things that will make your interest rate go higher than they otherwise would be. What are they?
Your credit score can cause a rate to be higher. Borrowers with a credit score of at least 740 are offered the best combination of rate and downpayment requirements while those scores as low as 620 will have a higher rate and might be required to have a higher down payment.
If you’re buying an investment property, rates for those will be higher compared to financing a home as a primary residence. Lenders know that should borrowers experience some sort of financial duress, the investment property will more likely to go into default than someone’s primary residence.
The type of property you’re financing can also cause a rate to be slightly higher. Condos for example might have a higher rate compared to a single family residence.
When lenders provide a lender credit, they do so after adjusting the interest rate higher. When you see a lender advertise a “no closing cost” loan, the offering will have a slightly higher rate to offset the closing cost subsidy.
If you have an existing mortgage and you’re refinancing, if you pull cash out in addition to refinancing the existing mortgage you can expect a slightly higher rate as well.
If you’re locking in your rate, the longer your lock the higher your rate. An interest rate lock for 60 days will be higher than a lock for 15 days, for example.
With a conventional loan, your rate can be higher with a smaller down payment. A 5.0% down payment and a credit score of 620 will have a higher rate than someone with 25% down.
Each of these adjustments attempts to compensate the additional risk accepted compared to an owner occupied purchase, 20% down and good credit. You can get these risk-adjustments from your loan officer who can explain your options.
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