Why is my rate quote higher than what is on the internet?

EDITORS NOTE: This post was written prior to the regulations in 2010 which require a Good Faith Estimate to be delivered upon application. Please be sure to WHEN a post was written when reading a mortgage blog as regulations and guidelines are subject to change.

This is a question I just received from a gentleman who is considering a low down payment mortgage, such as a VA loan or USDA rural mortgage.

Rates on the Internet are not created for an individual’s personal scenario.   They are most likely based on having a large down payment, conventional financing, full documentation, a certain loan amount and great credit.   Any of these variables can impact what interest rate you will qualify for.  Essentially, the lower the risk of default on a mortgage is, the better the rate will be.

What rates on the Internet also do not tell you are the specific costs that are associated with that interest rate.    Unless you’re obtaining a Good Faith Estimate from a Mortgage Professional, you really don’t know what charges (items listed in section 800 of the Good Faith Estimate) are included with that interest rate.

Here’s a short list of factors that influence the pricing of your mortgage interest rate:

• Loan to value (how much equity is in your property.   The more equity the better your rate.  The higher your loan to value, the higher your rate will be).
• Credit scores/history.  The better your credit score…the better your rate.
• Ability to disclose your income, employment and asset history.   If you need to utilize “no doc”, stated income/asset or no income/assets verified, your rate will be higher than someone who can provide a minimum two year history.
• Occupancy.   Investment properties have higher rates than owner occupied.
• Type of property.   High rise condos, vacant lots are just a few of the property types that may have a higher rate than a single family “stick built” home.
• Cash out refinances also have a higher rate than a “rate term” refinance (no cash out or limited cash out).
• Loan amounts.  A higher conforming loan amount will often provide a more competitive rate than a lower conforming loan amount.   A Jumbo, or non conforming, loan amount typically has a higher loan amount than conforming.
• Lock period.   The more days you’re buying a specific interest rate (lock) the more expensive it is.
• Type of program/term of loan.   Rates also vary from program to program (different types of ARMs, fixed, interest only, various levels of pmi, FHA, VA, etc.).
• Points.  Is the loan priced with discount or origination fees a.k.a. points?

Mortgage interest rates on the Internet can be handy for getting a gage on what’s going on in the market.   However, they do not factor in all the possible variables for an individuals mortgage needs.

If you’re going to shop for a rate on the internet, good luck!  I’ve been working with a gentleman the past two weeks who thought he found the best deal available by using a major source for mortgage interest rates on the web…it’s a mess and I’ll writing about it once the transaction is closed–his experiences may help a lot of borrowers.   I would be wary of anyone who has to buy leads or space on a web page to promote rates in order to receive business…do they not have enough business from referrals and returning clients to keep the lights on at home or do they need to keep churning new borrowers who have no reference to that LO?

Get the facts and make an informed decision.  I never recommend making a decision of who will be assisting you with one of your largest investments (your home) and financial tools (your mortgage) by interest rate alone.

If I can provide you with a detailed rate quote for your Washington home, please click here.