By Christoper Rivers
Over the years there have been many times where home buyers have come to my office upset because they were promised a 4.99% interest rate from another mortgage professional who could not give them that rate. When I dug a little deeper I discovered that the interest rate they “thought” they were getting was actually an advertisement in the newspaper and did not accurately reflect their true income, credit and overall risk level from a lenders perspective.
So here are some of the occasions in which you might find yourself getting a dramatically different interest rate than what you heard on the radio, saw on T.V. or read in the newspaper:
You chose a different mortgage type. Many times lenders will put the most attractive rates that will result in a lower monthly payment. However, they neglect to mention less than one percent of the population qualifies for these programs.
On paper you look risky. There is no substitute for having good credit and consistent income. If you do not have either then you may have a good story to tell, but on paper you look risky.
You are borrowing almost what the house is worth (High LTV). Since the days of one hundred percent financing are long gone, this now means you are putting the minimum amount the lender will allow you to put down and have a high LTV. The only exception to this rule is if you are using a FHA mortgage which I will discuss in-depth a little later.
Your loan cannot be resold on the secondary market. Banks view mortgages as investments so they will package ten or twenty mortgages together and sell them as an investment package to other banks. So if they have a group of ten thirty year fixed mortgages with six percent interest rates they will expect a six percent return each year for thirty years. However, if you are viewed as risky then they might not be able to sell your mortgage to other investors and so you represent more risk to them.
Your loan may or may not have points. The mortgage rate you saw may have included paying one or two points, however if you stated you did not want to pay points to your mortgage professional then you may get a higher interest rate and points are included in the interest rate in order to provide compensation to the mortgage professional. This is otherwise called yield spread premium.
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