Why Did my Bank Quote a Higher Interest Rate than Advertised?
Ever notice the small print next to the in-bank posters with loan interest rates? It is the bank’s way to cover itself when loan officers have to quote interest rates that are higher than those on the advertisement. Rates are not set in stone; they are based on risk. Today, risk is usually analyzed by a software program that looks at the five C’s of Lending: Credit, Capacity, Collateral, Capital and Character. If you want that great rate, you need to make sure you are a good lending risk.
- Credit. When was the last time you checked your credit report from EACH of the three credit bureaus? It is important that you keep up to date on the information in your credit report. Mistakes should be corrected, collections, if any, even if medical, should be paid, and balances over half of the limit need to be paid down to raise your score. before you pay off collections, verify the account source, and make sure you get a letter of satisfaction when you pay it. If you do not have the full amount, offer the collector what you can pay and see if you can get it satisfied. The goal is to close the collection so your credit can heal.
- Capacity. How much you pay in credit and loan obligations versus how much you earn is called debt ratio. It reflects your capacity to repay the mortgage loan. Your total debts should not exceed 42% of your gross income. Underwriting can make exceptions, but keep in mind there are multiple factors that affect rate, so try to keep your debt in line with your income.
- Collateral. Your property will be used as collateral for your mortgage loan, placing a lien against it. The current fair market value of your property will affect how much you can borrow against your home. I looked my home up on Zillow.com but when I searched it, I found a large range of prices…until I narrowed the search. The lender will order an appraiser to appraise your home before the loan is unconditionally approved.
- Capital. Offsetting any new debt that you take on, such as a new mortgage loan, are your assets. If you have savings, IRAs, 401k accounts or other liquid assets, listing them on your application may lower the risk of lending to you and improve the rate your lender offers on you mortgage refinance.
- Character. This is in reference to loan risk and reliability. Is your prior business experience successful? Do you stay at jobs for a reasonably long time or do you constantly change careers? Is your banking relationship a long one? Have you invested in your home either by taking care of the property or by the amount of equity you have built up?
What is great about each of these things, is that you can improve most of them given time and effort. Take time to look at yourself financially as a stranger would see you. If you see things to work on, keep the big picture in mind and get to work. When you are ready, visit HomeRefiNetwork.com for more information on how to prepare for a great refinance. If you need help with cleaning up your credit, visit ProCreditRepair.com for friendly professionals who can help you figure what needs to be repaired on your credit and can handle the repairs for you. You can get the interest rate you deserve, once you line up the five C’s.