One of the most common questions asked by borrowers is about differences in interest rates on mortgages. As a leading mortgage broker company, MortgageDepot wants our borrowers to be informed about mortgage financing when buying or refinancing a home or commercial property. As interest rates plummet to record-setting levels, we thought this would be a good time to provide information about how rates are set by lenders and why some borrowers get lower rates than others.

How do lenders set mortgage rates?

We work with many lenders offering a variety of mortgage products. In other words, mortgages come in all shapes and sizes based upon the following factors:

  • Property types: Different mortgages exist for the various types of property, including commercial, residential single-family homes, residential multi-family properties, cooperatives, condominiums, retail, multiple-use properties and many others.
  • Borrower types: A borrower receiving a paycheck each week and a W-2 at the end of the year from an employer is quite different from a self-employed borrower. The borrower with a steady paycheck would have not difficulty satisfying the income verification guidelines of a lender while the self-employed borrower may need a no-income verification loan.
  • Lending pricing: Lenders are free to set their own pricing guidelines for the mortgages they offer, so a borrower may be quoted a rate from one lender and a higher or lower rate for the same type of loan at a different lender.

Rates for low-documentation or no-documentation loans, such as what a self-employed borrower may need, probably have higher interest rates than the loan offered to someone working a conventional job with a steady paycheck.

What you see may not be what you get

Borrowers come to us with stories about contacting a lender about an advertised mortgage with an incredibly low interest rate and going away disappointed when the rate offered to them is higher. The problem with advertisements offering low rate is that borrower rarely see the fine print containing the eligibility criteria for those low rates.

Lenders take into consideration the following factors about a borrower when setting the rate charged for a mortgage:

  • Borrower with high credit scores get better rates than those with low scores.
  • Owner-occupied properties qualify for better rates than properties purchased for rental income.
  • Higher loan-to-value ratios usually mean higher interest rates.
  • Borrowers carrying higher debt-to-income ratios usually end up with higher rates than borrowers with low debt ratios.

How lenders make decisions about rates charged for financing may appear baffling, so it pays for borrowers to work with an experienced and trusted mortgage professional.

Work with a trusted mortgage broker

Our mortgage officers welcome questions from borrowers and respond with honest answers and practical advice about how to get favorable terms when borrowing to buy or to refinance.

Contact one of our loan consultants to learn more about this program.

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