The general Interest rate environment is determined by Federal Reserve interest rate policy, bond prices and what’s going on in the housing market. Under given interest rate environment, individual loan rate will be depended on many factors. Lenders start with the par rate, then look at your risk profile to determine if any adjustments are required. Usually your rate is based on a combination of the following factors:
Credit score – This is the first and biggest factor a lender considers. The higher your credit score, the better your rate. These days a credit score of 740 or above is considered as an excellent score and you will get the best possible rate.
Down Payment – The more money you have to put down, the less risk a lender will associate with approving a loan for you, which could qualify you for a lower rate.
Loan terms – In general, a shorter loan term will let you secure a lower interest rate.
Loan to Value Ratio (LTV) – This is the difference between the loan amount you are requesting and the appraised value of the subject property. The higher the LTV, the higher the rate.
Property Type — Normally rate for a 2-4 family house is higher than the rate for a single family house
Occupancy — Rates on rental property is usually higher than the rates for owner occupied residence
Points – Lenders allow you to pay points in exchange for a lower interest rate. Each point represents 1% of the loan amount. Typically paying 1 point will reduce rate by 0.25%