Mortgage FAQ

How do lenders decide my interest rate?

Interest rates are always customized to the borrower. Yours will take into account a lot of variables, like:

  • Your loan type
  • Your credit score
  • Your loan term
  • The value of the property
  • Whether or not you plan to occupy the property
  • When/on what schedule you pay property taxes and insurance

What could keep me from getting approved for a mortgage?

Credit score: Your score tells lenders how responsible you are with paying your bills.

In general, lenders consider scores of 740 or higher to be excellent. If your score is under 640, you may find it more difficult to get approved. Even if you do, you will likely find yourself paying higher interest rates for the privilege.

Debt-to-income ratio: According to Federal rules, your monthly debts—including your potential mortgage payments—must equal no more than 43% of your gross monthly income. If your debts are over, your mortgage won’t be considered qualified, which can scare off lenders.

Job status: Most lenders like to see that you’ve worked in the same job or field for at least two years before applying for a mortgage loan. This isn’t a hard and fast rule, but lenders will be more cautious if you’ve recently swapped jobs. Why? They worry that you’re more likely to lose your stable income source.

Home value: Sometimes it’s not your fault your application gets denied. For example, say you agree to pay $190,000 for a home and apply for a loan of $170,000. If an appraiser determines the home is worth only $150,000, a lender isn’t going to give you a loan for more than the house is worth.

Will my monthly mortgage payment ever go up?

Luckily, there are only two reasons your monthly payments could rise. If you have an adjustable-rate loan, your rate will likely rise after your fixed-rate period, which is a set number of years you decided on when you took out the mortgage.

If you have a fixed-rate mortgage, where your interest rate is locked in for the life of your loan, it’s technically possible for monthly payments to rise, but only because the included property taxes rise.

What’s the purpose of a refinance?

Some people refinance to take advantage of lower interest rates and reduce their monthly payment, and others refinance to convert their adjustable rate mortgage to a fixed rate. Also, depending on the amount of equity in your home, you can choose a cash-out refinance and borrow cash from your equity.

How much does a refinance cost?

Refinancing isn’t without costs. There are the closing costs, which can range from 2% to 5% of the mortgage balance. If that’s not doable for you, some lenders can waive the fees in exchange for charging a higher interest rate or roll the closing costs into the mortgage balance.