Understanding the Kinds of Interest Rates Available
Getting a loan in the olden day was easier since it did not involve a lot of considerations. Without a lot of questions. Just “boom”, there’s your answer. This made comparisons for interest rates to an easy task. But in today’s mortgage lending world, it’s just not that easy.
lets take an example of two clients buying identical homes. The clients may however be quoted different interest rates. Despite them having similar credit score ratings. That’s because you’re granted different discounts or assessed with different cost additions for various aspects of your lending profile.
For instance, one guy may be getting a conventional loan, and the other an FHA (Federal Housing Administration) loan. A lender has no additions or discounts added to it if the FHA loan has a credit score of 620. But, dip below a 620 and there will be quite a pricing differential. With a conventional loan, you’ll get discounts the higher your credit score. A client with 720 credit score, has a higher discount than the one with a credit score of 620. Nowadays, a lender has to understand how to read a chart in order to be able to place a conventional loan quote.
Another big factor is loan size. Big loans attract high discounts. Moreover, financing a smaller loan is mainly costly.
The buyers intention for the property may cause the difference also. if the intention is to use the property as a second home or primary residence, its rating will be higher compared to if it was to use it as an investment property. It is often very unlikely for an individual to stop paying for a personal use property from an underwriters perspective.
The type of loan taken is also a major determinant factor. Conventional rates are different than FHA rates, which are different than VA rates, which are different than Rural Housing rates. Despite the fact that the two people may be buying the same house. Of course, you can’t get a VA loan if you’re not a veteran or the spouse of one buying a loan. The conditions for getting a rural housing loan is that one should not be making too much money and they should be in a specific ZIP code. So, at times, your choices are limited for you.
It is important to understand that even when the interest rates are the same the payments may be different. If your loan requires mortgage insurance, your monthly premium could differ because of your credit profile.
It is very vital for one to be patient before considering a loan program. Patience is required before considering payments and loan programs. All options should be explored.
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