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What Affects Home Loan Rates?

There are many factors that affect not only the ability of a customer to qualify for a loan, but also the rate they may be offered. Some important factors include:

Credit and Payment History

Making timely payments on your debt obligations is very important. Late payments can greatly affect both your ability to qualify for a loan and the interest rate offered.

Debt-to-Income Ratio

Your monthly debt obligations divided by your income provides your debt-to-income ratio. The higher the ratio, the higher the loan’s risk, as the percentage of your income already required to pay existing bills is high. You have less money available to take on new debt or pay for day-to-day expenses and emergencies. Loan programs often include a maximum “DTI” ratio that a borrower cannot exceed.

Loan Amount vs. Property Value

The percentage of the loan amount to your property value (loan amount divided by the property value) is the loan-to-value ratio. The “LTV” ratio can affect the ability of a borrower to qualify for a loan and the interest rate they receive.

Other Factors

Among other factors that may affect the rate you are offered are:

  • Property Type (for example, single- or multi-family, detached or condominium/townhouse)
  • Occupancy (whether the property is your primary residence or not)
  • Property Condition
  • Market Conditions
  • Loan Amount
  • Points