What Gets You a Good mortgage rate
Getting a good mortgage rate sometimes seems as simple as calling your local bank or mortgage company for a quick quote. While it is possible to do it this way more then likely the lender will give you quotes based on the best possible scenarios and often assume you fit into those scenarios Below I have listed some of the areas that will affect your final rate.
Your Credit Rating – Lenders and banks will give borrowers who have good credit scores much lower interest rates then they will give to borrowers with bad credit. As a general rule of thumb once your credit score goes over 680 your rates will start to get low and once over 720 you will get the best mortgage rates possible.
LTVs or Loan to Value Ratio – You can get this by dividing the total amount to be financed by the market value of the property. From the perspective of the lender, it is very important for them to determine more or less how much the property is worth. The reason for this is that typically, lenders will not want to hold on to a house that’s worth less than the loan they gave out to you. Assuming that the bank lends you 80% of the value of your house, if you default, they foreclose on your property and sell it for the market value, thus profiting 20%.
Now 20% is a lot of money but you have to consider that prices of real estate fluctuate. In case the price of your house decreases, the lender has a comfortable buffer before they lose money on your property. Higher LTVs makes it more likely that your lender will give you a higher cost of debt.
Your Income Levels – one of the factors that will help you get cheap financing costs is your verifiable gross income. The higher the income and loweer the debt to income ratios are, the more comfort that your lenders will have in terms of your ability to service your monthly debt obligations. The more comfort they have, the more chances that you will be perceived as low-risk, thereby decreasing your financing charges.