Tuesday, April 19, 2011
Getting A Great Rate!
When purchasing or refinancing, getting the lowest interest rate is one important piece of the puzzle. There are three main elements that go into quoting an interest rate. 1. Your credit score. 2. Your Loan-to-Value. 3. Your Debt-to-Income Ratio. This is not a one size fits all deal. Each person has their own unique financial profile. Working with a qualified mortgage loan officer, you’ll be able to determine how each aspect impacts what interest rate you’re able to get.
Credit Score - Most borrowers have three credit scores. Equifax, Experian, and Trans Union (FICO). When your credit report is pulled, mortgage lenders will use the middle score of these three to assign your “file” credit score. If there will be a co-borrowers on the application, the same rule applies to them. The lender will compare the two middle credit scores, taking the lower of the two as your “file” credit score. The higher your credit score the better.
Loan-to-Value – This ratio is expressed as a percentage. It is determined by how much money you place as a down payment. For example: With a purchase price of $100,000 if you put $25,000 as a down payment, the Loan-to-Value would be 75%. The lower your LTV is the better.
Debt-to-Income Ratio – This ratio is also expressed as a percentage. It identifies the amount of consumer debt you carry each month as compared to your gross income. For example: If your income is $3,000 per month, and the monthly payments for your credit cards, auto loans or leases, alimony/child support total $1,000 per month, your Debt-to-Income Ratio would be read as 33%. All things being equal, a Debt-to-Income Ratio of 36% is considered average. For mortgage loan approvals, Debt-to-Income Ratio’s can as high as 55% depending on other factors of your financial profile. The lower the Debt-to-Income Ratio, the better.