Several factors can affect your mortgage premiums such as the amount of the loan, the length of the loan, adjustable rates, the size of the down payment, discount points, closing costs, credit quality, income level, and lock-in period. . An adjustable rate mortgage may get you started with a lower interest rate than a fixed rate mortgage, but your payments could get higher when the interest rate changes.
A larger down payment such as one that is greater than 20% of your loan, will give you the best possible rate. A down payment of 5% or less will result in a higher rate as you are starting with less equity as collateral. Basically in exchange for more money upfront, lenders are willing to lower the interest rate that they charge, which ultimately lowers the payments of the borrower.
Credit quality and debt-to-income-ratio also affect the terms of your loan. The better credit you have, the lower payments you have. Likewise, the higher your income is in relation to the debt you owe, the lower the interest rate you receive on your loan. However, if your monthly income barely covers your minimum debt obligations, you will not receive the lowest available interest rate even if you have great credit.
Your credit report provides information to current and prospective creditors to help you make purchases, secure loans, pay for college educations and manage your personal finances.
Credit reporting makes it possible for stores to accept your checks, banks to offer credit and debit cards, businesses to market products, and corporations.Your credit report is only compiled when you or a lender makes an inquiry. Information supplied by lenders, you and court records is gathered from the credit reporting agency's file and presented in report format for the requester.
Another important factor in this process of determining credit ""worthiness""is the ubiquitous credit score. A credit score is a value assigned to several criteria used in making lending decisions. Criteria chosen in this process include the amount you owe on non-mortgage-related accounts such as credit cards, your payment history and credit history.
Based upon this number,lenders calculate a value representing the amount of risk you pose to a lender. That value takes into account the track record of other consumers with similar credit profiles. By looking at this value, lenders are able to ascertain whether it's a good idea to extend you credit. FICO credit scores range generally from 300-850, with anything above 660 considered good. Yet other factors such as heavy debt or lower income,can affect credit decisions made by lenders for two clients with the same credit score but different incomes or debts.
Mortgage companies use ratios to determine what kind of loan and mortgage to offer clients. They consider ratios such as debt -to-income as well as the ""front ratio"" or housing payment ratio, which compares your total mortgage payment to your monthly income. Generally, this ratio is 30%. Another ratio they use is the ""back ratio"" or total debt expense ratio, compares your total monthly obligations including your total mortgage payment to your monthly income. This ratio is generally 36%.
About the author: Graeme Notega is the owner of ABL Mortgages which tackles all mortgage issues.For more information, go to: http://www.ablmortgage.com
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