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What factors determine my interest rate?
Here is a question I get asked quite often: "Well, my credit score is 760, why isn't my rate lower?"
That question is a great one. There's a lot of misconceptions on how one's interest rate is determined. As it happens, credit score is only one of three factors that go into generating a rate. Three people, all with the same credit score, could end up with a different interest rate depending on the details of the other two factors. Here's a quick breakdown of how it works:
Of course, your score plays a big part in your interest rate determination. The higher your score, the better your interest rate is. Loan programs generally allow credit scores down to 600, but to get the best rate having at least a 680 is ideal.
Also, it's important to note that higher the better only goes to a certain point. If your score is 820, you will not get a better rate than someone with a 790. The reason for this is lenders use 740 as their highest benchmark and give you the best interest rates at that point and above.
The larger your down payment, the lower your interest rate. Put down only the minimum required by the loan program you're using, and you'll see a higher interest rate because of it.
When deciding how much to put down on your mortgage, ask your mortgage professional to provide multiple scenarios for you. With those scenarios, you'll be able to see how much your down payment affects your monthly loan payment.
There's a couple of unique programs out there, but the main ones are Conventional, VA, FHA, and USDA, what program you're using plays a part in your rate. VA loans have the lowest interest rates out of all the loan programs out there.
What it comes down to are risk layers. High scores and large down payment means you're low risk for default…., so you'll see a better interest rate.
To ensure you're getting the best rate possible it's good to chat with a mortgage professional before you are ready to move on a mortgage transaction. With just a quick consultation your credit can be reviewed, and we can tell you what steps you might take to raise your score. We should also discuss allowable down payment sources and documents required for underwriting. If you do a little preparation up front, you're guaranteed to get the best interest rate available when it's time for your new mortgage!
If you have questions about any part of the mortgage process, feel free to contact me. I'd be happy to help!
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Phone or Text: 321-794-5626
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