What Determines A Buyer’s Interest Rate?

It’s no secret that buyers are constantly asking questions about their interest rate, and trying to shop for the best deal. Technology now makes it very easy for the consumer to “Google” interest rates to see what is currently being offered. Believe it or not, this may lead to issues on your transaction. The consumer may be misled or promised something that cannot be done, suffer from hidden fees, or may simply take too long shopping and delay the closing. After reading this, you will know exactly what to say to your shoppers in order to give them peace of mind without mentioning any numbers.  

  • What Type of Property? – Not everyone is looking for a single family home. Condos and multi-family units are priced out higher when locking in the interest rate.
     
  • How is the property being occupied? – If your client is purchasing the property as an investment, the interest rate will be higher as oppose to buying it as a primary residence. Why? Think of it like this, you are going to be using rental income to pay the mortgage, which was also used to help you qualify for the loan. If your tenant decides to skip out on rent that month, there may be a problem. The bank sees this scenario as a risk, and therefore charges a higher interest rate.  
     
  • Credit Score & Loan Program – Credit score and loan program go hand in hand because sometimes it is the credit score that determines the loan program that best suits your client. FHA and Conventional rates are always different. Of course the higher your credit score, the better your interest rate.  
     
  • Down Payment – This is an obvious factor. Your buyer putting 20% down will price out better than your buyer putting 5% down.
     
  • Market – Last but not least the market. The market will change sometimes 3 times in a day. Timing is crucial, which is why it is important for the loan officer to be familiar with your clients file, monitor the rates, and lock them in when the time is right.