What Determines Your Mortgage Rate? It’s More Than Just One Number
One of the most common questions we get is:
“What are your rates?”
It is a fair question. Most people want to know what their monthly payment may look like, how much home they can afford, or whether now is a good time to buy or refinance.
But the truth is, mortgage rates are not one-size-fits-all.
Your rate is not just based on where the market is today. It is based on how your specific loan is structured.
Here are some of the main things that can affect your rate:
Loan program and purpose
Conventional, FHA, VA, jumbo, Non-QM, bank statement, full documentation, and limited documentation loans can all price differently.
The purpose of the loan matters too. A home purchase, rate-and-term refinance, and cash-out refinance may each have different pricing.
Credit, down payment, and equity
Your credit score plays a big role. A stronger credit profile may help with better pricing, while a lower score can affect the rate, cost, or loan options available.
Your down payment also matters. Putting 20% down may price differently than putting 3%, 5%, or 10% down.
On a refinance, the lender also looks at how much equity you have in the home.
Property type and income documentation
Rates and guidelines can vary depending on the property type. A single-family home, condo, townhome, multi-unit property, second home, or investment property may all be reviewed differently.
Income documentation matters too. A W-2 employee, self-employed borrower, business owner, or investor may each need a different loan program.
Points, costs, and locking your rate
Never look at the rate without also looking at the cost to get that rate.
A lower rate may require discount points or higher closing costs, so the lowest rate is not always the best option.
Also, a rate quote is not the same as a locked rate.
In most cases, before a rate can be locked, the loan needs to be tied to a specific property and the file needs to be officially moving forward.
That usually means:
- Your offer has been accepted
- Escrow is open
- The property address is confirmed
- Your loan application has started
- Initial loan disclosures are ordered
Until those pieces are in place and the rate is officially locked, the rate can still change with the market.
There are some lock-and-shop programs that may allow a buyer to lock before finding a home, but they are not available with every lender, every loan program, or every borrower.
The bottom line
Asking “What are your rates?” is a good place to start.
But the better question is:
“What loan strategy makes the most sense for my situation?”
The goal is not just to give you a number.
The goal is to help you understand your options and choose a loan strategy that fits your situation.
