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Not everyone looking to buy a home is going to shop for Atlanta Home Loans through a number of different lenders, meaning they are not going to see the wide range of interest rates that are available. The various costs that are associated with these different loans will vary significantly depending upon the type of loan that is being offered.
One has to wonder why lenders will usually offer various terms to borrowers who seem to have the same level of qualifications for the loans they apply to.
In order to help you understand why a large number of lenders do this, we first have to look at why various rates are offered to different applicants and why they will generally offer unique offers to the same applicant.
Understanding Why Lenders Set Various Rates For Different Applicants
The various mortgage rates that particular applicants will qualify for are going to differ widely. A number of factors are used to determine the average mortgage interest rate that the applicant will qualify for. Some of the determining factors will include down payment size, debt-to-income ratio, as well as credit score. There are going to be other factors that will determine what lenders are prepared to offer, but those are three of the most important.
While one applicant may get offered a rate of under 3%, another applicant may qualify for a rate of 3.5%. The rate that the bank is going to offer to the applicant is going to be solely dependent upon personal financial factors that are present when they apply for a loan. The general financial situation of the applicant is going to allow the bank to understand if the risk is worth the loan.
Lenders will usually offer a higher interest rate to lenders if the situation tends to be riskier. Individuals who have late payments, charge offs, low credit scores, or even a high debt to income ratio will be generally viewed as higher risk and tend to be offered a higher interest rate.
Why Will Different Lenders Offer Different Rates To The Same Borrower?
Every lender will start with a similar model when assessing risk. These models have been set by the industry giants such as Fannie Mae and Freddie Mac who actually will purchase loans once they have been made by the bank. If the bank has not met these standards, they will not be purchased.
In addition to the qualifications that were discussed earlier, every individual lender has their own set of qualifications and standards in addition to those that have already been set. In simplest terms, every lender has their own model to assess the individual risk of an applicant that is requesting a loan.
One lender may be more concerned with a credit score whereas another may be more concerned with the applicant’s debt to income ratio, additionally, another lender may focus on the size of the down payment, it will all be relative to the lender. These specifications are known as mortgage overlays, these are specific rules that the lender has put in place above the general standard.
The type of loan is also going to make a difference on the interest rate that will be offered. A lender will typically place a higher interest rate on a mortgage that features a longer life term. For example, loans with a 30 year term are going to have a higher interest rate than those that are 15 years. Additionally, a zero down loan is going to have a higher interest rate as opposed to a traditional mortgage.
In addition to the interest rate, one must also assess the various fees and costs that will be associated with the loan they are considering in order to determine if it is truly the best offer that has been placed on the table.
Working with a mortgage broker is going to allow individuals to see all of the options that are available to them and see what options they have in one specific setting.