Posted on August 4, 2015 - 12:49 PM
by Natasha Hunter
Until more is known about the buyer, the property, and the deal - interest rates are just random numbersbeing tossed around...
We've discussed interest rate variables a few times before in the newsletter. With real estate markets looking healthier and more buyers having the confidence to re-enter, lowest rate flyers are out there once again.
Let's cut through the noise so you can respond accurately when your buyers ask about rates. Help them understand how different variables affect the rates they can expect to get on their purchase or refinance.
Important - For any given loan scenario with all variables taken into account, most all reputable lenders will offer very similar, sometimes identical, rates to a qualified borrower. The real difference is in the service, guidance, and accountability they extend to buyers and Realtors®.
A combination of factors determines the rates and loan programs available to buyers using financing.
The rate sheets Realtors® receive from many mortgage
lenders show best-case, best available market rates. They are sometimes referred to as "teaser" rates because they're intended to get the attention of potential borrowers.
By law, all rate sheets and advertisements shown to the public
must also refer to the basic qualifying standards that have to
be met to actually receive those advertised rates. These are called the offered rate assumptions and are usually found insmall print at the bottom of the page or an online pop-up box if you click "loan assumptions".
Most often, these assumptions are:
- High credit score
- Low DTI (Debt-To-Income) ratio
- Primary residence purchase
- Detached single-family home with no HOA
- At least 20% down payment (lower LTV ratio)
This optimum combination of factors just doesn't occur all the time in real life.
The interest rate a buyer receives starts with a market rate, then is adjusted to reflect individual borrower qualifying specifics (like credit score and DTI) and the combination of factors we're discussing today. It's all about lenders' risk management, a topic I've mentioned in other newsletters.
Market rates can be looked at as being available for "plain vanilla" scenarios in which a well-qualified buyer is making a purchase that conforms exactly to the qualifying guidelines
for a specific loan program.
When factors in a deal vary from those standards,
the available rate changes to reflect any increased risk.
Until buyers are aware of the combination of factors we're discussing today, they are often confused and even insulted
when the featured rate they see on a cable TV commercial, internet ad, or lender's rate sheet isn't available to them.
Here are some of the main factors that lenders considerin addition to the buyer's income, assets, and credit:
- Fixed or adjustable interest rate
- Government-insured or conventional
- Purchase or refinance
- Loan amount (conforming, high-balance, or Jumbo)
- Loan-To-Value ratio
- Term in years
- Lock period in days
- Mortgage Insurance or LDP/NMI above 80% LTV
- Escrow waiver
Property Variables :
- Single family or multi-unit
- Attached (villa, duplex, townhouse)
- Condo (low rise, high rise)
- Planned Unit Development with HOA
- Co-op (residents own shares, not property)
- Geographic location
- Constructed on site, modular, or manufactured
Use Variables :
- Primary residence, owner occupied
- Second / vacation home, not rented to others
- Investment property, short-term or annual rental offered
- Mixed use (residential, commercial, office, agricultural)
The safest and easiest way to...
...handle buyers' rate questions is to have them call me directly so I can accurately answer their questions, taking into account their personal finances as well as the specifics of any purchase they're considering.
Each real estate transaction is unique, so the variables change with each buyer and property. There's no such thing as a "plain vanilla" real estate deal or mortgage loan application.
It's important for buyers to be aware of these variables we've just discussed. They may be assuming they'll get a rate they saw on some ad or rate sheet, but didn't have time to read the fine print.
When buyers want to use financing, depend on me to explain the details, present their options, then walk them through qualifying and application. Let's provide them with accurate information from the start.
Well-informed buyers help make our trip to the closing table so much smoother.
Let me reinforce the trust
your buyer has placed in you! sm
All information provided by Chris Carter. Contact information below.
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