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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 in small 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 TV commercial, internet ad, or lender's rate sheet isn't available to them.
Here are some of the main factors that lenders consider in addition to the buyer's income, assets, and credit:
Program Variables:
- 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)
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