top of page

The Lowdown on Loans

What Determines Your Mortgage Rates

Understanding mortgage loans and interest rates can be confusing and frustrating for many homebuyers. It doesn’t help that most advertised rates are just a marketing ploy to lure you in!


In fact, a lender looks at several factors to determine an interest rate based on YOUR specific financial situation, including your credit score, your down-payment amount, your loan amount, and even the type of home you purchase.


The bottom line is -- Every loan scenario is unique, which means you might get a different interest rate than the person next to you (and the one you saw advertised).


No One-Size-Fits-All Interest Rate


Here are 4 important points to be aware of before you go shopping for a loan:

  • Rates vary depending on the market and several borrower-specific factors. That’s what makes it complicated.

  • There are tons of different banks, credit unions and lenders that offer entirely different type of loans and corresponding interest rates.

  • The rates you see advertised are usually meant for someone with excellent credit, applying for an owner-occupied single-family home loan, with a big down-payment.

  • Your scenario is unique, so it’s good to know about all the factors lenders are interested in when you apply for a loan.


Loan Purpose


The two purposes for a mortgage loan:

  • A purchase money mortgage applies to the purchase of a principal residence, second home or investment property.

  • A refinancing loan is when you want to obtain new financing for an existing loan. You will probably get a lower rate for a purchase money mortgage than a refinance.


Loan Amount


Your rate will be different depending on the size of your mortgage. You will likely get a lower interest rate when your loan amount is lower and an even higher rate if your loan amount is over higher.


When you hear things like jumbo loans and conforming loan limits, these are the loan amounts for the Boise area they are talking about and these different amounts affect your interest rate.


Credit Score


This one is pretty simple: the higher your credit score, the lower your rate.


This is the single most important factor to determining your mortgage rate. But, your score isn’t the only thing that matters; what it says on your credit report matters too!


Loan-to-Value Ratio


The loan-to-value ratio is the loan amount as a percentage of the total appraised value of the property. The higher the loan-to-value percentage, the higher your mortgage rate will be.


Property Type


If you’re purchasing a single-family residence, the mortgage fees will be slightly lower than if you were to purchase a condo. This is because a condo is part of a larger complex, so if other owners in the complex miss a payment or there are vacant condos, your condo will lose value. Interest rates will be even higher for a co-op.


Occupancy Type


There are three types of occupancy: owner-occupied, second home or investment property.

A second home will have slightly higher mortgage rates and an investment property may be even higher. This is simply because there’s less of a chance that a homeowner will walk away and miss payments on their own residence.


Debt-to-Income Ratio


This is how a bank determines how much home you can afford.


It is your monthly liabilities divided by your monthly income. This gives them a percentage; and the lower the percentage, the lower your mortgage rate.


First Steps to Take


This is all about risk. Lenders base the interest rate they give you on how much risk they’re undertaking by loaning to you. That’s why I will always give you as much information as possible about the process and how to prepare your finances.


I recommend you shop around for your mortgage rate! Again, different lenders will offer different loans and rates, so the more you know, the better your rate will be.  I have great lenders I can connect you with that have low rates.


All of this can feel overwhelming and complicated, but don’t worry – you’re not alone!

No matter what your loan scenario is, I know all about mortgage rates and the lending process. I’m here to answer all your questions and lead you step-by-step to your best deal.

How to Negotiate From Contract Through Inspection

This is the seventh article in the series called, Love Selling Your Home: Minimize Your Stress, Maximize Your Profit, a step-by-step guide to selling your home. This series takes you through the entir

Comments


Image by Scott Webb

5 Week Sellers Challenge

If the thought of getting your home ready to sell overwhelms you - I get it! There’s a lot to do! But with this FREE 5-week Seller’s Challenge you can get your home ready to sell in just 5 weeks (or less!). Each week, we’ll send you top tips, tools & tricks you need to get your home sold fast and for the most amount of money possible!

Image by Maria Ziegler

Buyers Workshop

Looking for a home can be overwhelming. Whether you are a first time home buyer or if you have not purchased a home in the last 5 years, there is a lot to know!​

I've created this completely free workshop to help you navigate the process of buying a home without ever having to leave yours!

Image by Alden Skeie

Boise City Guide

As a bustling hub of culture, commerce, and community, Boise offers an array of opportunities for individuals and families looking to find their perfect home.  Whether you're moving here for the first time, lived here your whole life, or simply curious about all the things Boise has. to offer, this guide will serve as your go-to resource.

bottom of page