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Shopping for Interest Rates

What you should know about Shopping for Your Interest Rate

In today’s mortgage arena there are a virtually hundreds of mortgage options for buyers. While this opens opportunities once impossible, it can be confusing knowing what type of program and interest rate to choose.

When buyers check out the going rates in the local papers or on-line service companies they are usually looking at the FNMA 30-year fixed rate for 12 day pricing. This rate is priced with 20% equity or better; good credit scores and for an owner occupied dwellings of less than 2 units. Below are some, but not all, of the common adds which will affect your interest rate.

Lock term periods: This is the amount of time you are requesting the lender to hold and lock the interest rate for you. In the current market place most lenders need 30-45 days to complete the loan paperwork and underwriting to close a loan. As you can see a 12-day price will not be adequate unless you are ready to close.

Loan to Value: This is how much money you as a homebuyer want to use as a down payment. This does not include closing costs. You can expect to have adds to the rate and fees when you put less than 10% down. The fees usually range from 1%-2% of the loan amount for 0%-5%, down payment loan programs. Many buyers choose these higher interest rate loan options because they are able to come in with little to no money down.

Credit Scores: In determining your credit worthiness lenders look at the scores rated on your credit report. Lenders believe they have less risk for default on the loan the higher the credit score rating is. Therefore, buyers who do not have as high of a score for a particular loan program will pay a higher interest rate and fees. For the 30-year fixed FNMA a buyer must have a 620 credit score or better.

When shopping for interest rates do not let all lenders pull your credit report. This can lower your score and actually cost you more money in the long run. Have an idea of how much money you are coming in with, a ball park range of what your credit score is and how long you will need to have the lender hold the lock term. Be upfront with your lender regarding your expectations and concerns about rates and where you want your payments to be. This will help take some of the stress out of shopping rates and mortgage programs and make you a better-educated homebuyer.