Interest Rates: One Man’s Gain is Another’s Loss

In the old days, you used to be able to call a lender, give them a note amount and term, and get a quote.  Lickety split.  Not a lot of questions.  Just “boom”, there’s your answer. It certainly made interest rate comparison much easier.  But in today’s mortgage lending world, it’s just not that easy. 

In fact, say you’ve got two customers buying identical homes in a development.  Each customer can be quoted completely different interest rates for different reasons.  Even if they have the same credit score.  That’s because you’re granted different discounts or assessed with different cost additions for various aspects of your lending profile. 

For instance, one guy may be getting a conventional loan, and the other an FHA (Federal Housing Administration) loan.  With FHA and a credit score of 620, there are no discounts or additions for credit score that a lender will add to the total price.  But, dip below a 620 and there will be quite a pricing differential.  With a conventional loan, you’ll get discounts the higher your credit score.  Thus, a 620 credit score in the conventional realm does not have as much interest rate muscle as a 720.  And there are different cost hits in between for every 19 point differential. Plus, if you have less than a 620, you probably won’t get conventional approval.  A typical lender nowadays has to be really good at reading a chart to quote a loan in the conventional world. 

Another big factor is loan size.  Again, you’ll probably pick up a discount if you’ve got a healthy sized loan.  However, if you’re financing a smaller amount, it may cost you a bit.  Thank goodness for excellent first time homebuyer programs that let qualified borrowers avoid some of these pricing hits. 

Another big difference in interest rates available is the buyer’s intention for the property.  If it’s a primary residence or a second home, one gets a better rate than if it’s an investment property.  From an underwriting perspective, a borrower is less likely to quit paying a mortgage for a property that is intended for personal use.  Statistics have proven this aspect of lending to be quite true.  Of course, if it is an investment property, the borrower is going to have to come up with a heck of a lot more money out of pocket anyway.  If it’s a manufactured home, you have to reconsider loan programs again.  Some programs aren’t available for manufactured homes, and especially if it is a manufactured home that is an investment property. You’ll have to find a lender that specializes in this type of loan.

As touched on before, the type of loan matters, too.  Conventional rates are different than FHA rates, which are different than VA rates, which are different than Rural Housing rates.  Even for the same house.  And again, as mentioned before, throw THDA or another first time housing program into the equation, and you start all over again. Of course, you can’t get a VA loan if you’re not a veteran or the spouse of one buying a loan. And you can’t get a rural housing loan if you’re in the wrong zip code and make too much money. So, at times, your choices are limited for you.

Even if you get the same interest rate, it doesn’t necessarily mean your payment will be the same.  If your loan requires mortgage insurance, your monthly premium could differ because of your credit profile. 

I guess the best advice is to be patient when considering loan programs and payments.  Make sure you explore all your options.  And don’t worry about the guy sitting next you.  Just keep your eyes open and work with a lender that’s trustworthy.