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hat drives your interest rate and how to understand the difference? This one, I could go on and on for days. Clients call all the time and say I saw on the internet that my interest rate is going to be X and yes, while you might have seen a certain interest rate online, there are so many factors that go into an interest rate and I want to touch on just a couple of them today.

 

 

 

Number one – your property type.

This is critical If you’re buying a manufactured home, that is absolutely going to have a different interest rate than a single family home. Also, the type of loan that you’re going to be doing, whether we’re doing a conventional loan or an FHA or VA or USDA, that’s what we call a hit to pricing. And so it’s critical that you can understand that if you’re doing a conventional loan where you have 20%, that you’re going to put down and you have an 800 FICO versus someone that might be doing a USDA loan with a 100% financing and a 600 FICO, there is absolutely going to be a difference between those two loans and those two interest rates.

 

Number two – Your property designation.

Is this going to be your primary residence? Is this going to be a second home or is this going to be an investment property? Lenders are always going to give you a higher interest rate if you are buying this as a second property or an investment property. That’s because the default rate on those types of homes is significantly higher than if it’s just going to be your primary residence.

 

Lastly, is your FICO score.

Obviously, if you have talked to your credit, that’s going to be in 740 or above. You were going to be getting what we call prime interest rates. Now, if you have a slightly lower credit score, your interest rate will show that difference. Just remember that what you see online is not necessarily what you’re going to be getting based on the type of loan that you’re going to be doing. That’s why it’s critical that you work with your lender in advance to understand the loan program that you’re going to be obtaining.

 

Relying on an online quote is about like asking your realtor if they trust Zillow for their home estimate. Probably not the best indicator of what you’re going to be getting for an interest rate.

 

Relying on an online quote is about like asking your realtor if they trust Zillow for their home estimate

Bethany Ashby

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