There are several factors that impact mortgage rates. Mortgage rates are based on “risk-based pricing” – higher the perceived risk, higher the rates that get charged to you. Also, its not always a higher rate, sometimes you can get the same rate but pay a much higher cost to get that rate.
Here are some factors that impact mortgage rates:
Credit Score – For conventional mortgages 740+ is considered an excellent score. Any score under 740 can result in higher cost or fees. Assume your credit score is 719. If you are getting a loan amount of $400,000 with 20% down, you will pay a fees of $3000 extra compared to someone with a 740 score.
Loan to Value Ratio (LTV) – Higher LTVs mean higher rates. So if you are getting a loan with as much as 40% down payment, you should get better rates than someone who only has 10% down. Again, assuming a 719 score, that would mean a difference in cost of 1.25% or $5,000 for a $400,000 loan amount.
Loan Program – Fixed rate mortgages would typically have higher rates than an Adjustable Rate Mortgage (ARM). Check out how our rates stack up against the top banks
Occupancy Type – A primary residence or second home would get you better rate than an investment property.
Property Type – A condominium with less than 25% down payment will have a higher rate than a single family residence.
Loan Amount – The conforming loan limit is $417,000. But in some high cost areas like San Jose, CA the loan limit is $625,500. But the rates are higher on loan amounts over $417,000.
Subordinate Financing – If you are getting a second mortgage along with the first, you may end up paying a higher rate even on the first mortgage.