The interest rate on a mortgage is determined based on a borrower's credit score (higher the score, lower the rate), the size of the loan compared to the total value of the home (loan-to-value or LTV), the size of the loan in relation to each county's loan limit, the type of property (single family home or condo - condos have higher rates) and whether the loan is for a primary residence, second or vacation home, or an investment property, and the loan term (30 year, 15 year, etc. - shorter term equals lower rate).
When you see interest rates quoted in the media, they are almost talking about a 30 Year, Fixed Rate, 20% down-payment, within the County loan limit sized loan for a single-family home, and a good credit score (720+). This is the absolute best case scenario, so borrowers are often surprised that the real rate for their loan is higher than what is portrayed in the media. We can help break this down for you so you understand exactly what is driving your rate.
Interest rates also vary based on the type of mortgage. Conventional (Fannie Mae / Freddie Mac), FHA, and VA loans tend to have the lowest rates, but have the strictest qualifications. Jumbo loans are for higher priced homes and can have similar rates to Conventional but require borrowers to have more savings left over after closing (reserves).
If a borrower can't get a Conventional or Jumbo loan, there are other types of loans available, with higher rates. Generally, the less information and proof of income you need to provide to get the loan, the higher the interest rate, because the bank is taking on more risk.
At Groves Capital we offer a wide variety of mortgages for all types of borrowers, and we love getting into the detail and explaining exactly what is behind the interest rate. Please reach out anytime to discuss your scenario and we'll be happy to assist.