Regardless of what a lender quotes on mortgage rates, the actual rate paid by a borrower is based on a number of variables. Lenders determine whether to loan money and at what rate based on the risk involved with the transaction.
Factors that increase the risk that the loan will be repaid will proportionately increase the interest rate charged to the borrower. If the risk becomes too high, the loan will not be approved. Some of the most important considerations:
Loan amounts – conventional loans for more than the conforming limits set by Fannie Mae are considered jumbo loans and generally have a higher interest rate. Many loans in the Destin and South Walton markets exceed those limits.
FICO score – the lowest interest rate is reserved for the highest credit scores; the lower the score, the higher the rate borrower will pay.
Occupancy – borrowers occupying a home as their principal residence are considered a better loan risk than second homes and investment properties.
Loan purpose – purchase transactions generally have the lowest interest rate while refinancing a home is often higher. Real estate purchases for use as second homes or for investment (as is so common for this market) will command a higher interest rate and higher down payment requirements as well.
Debt-to-Income ratio – a borrower’s monthly liabilities divided by their gross monthly income develops a ratio that helps lenders to assess the borrower’s ability to repay the mortgage.
Loan-to-Value ratio – the lower the percentage of the loan to the appraised value of the property will generally lower the interest rate.
Any combination of these factors could limit a borrower’s ability to secure a mortgage at the rate initially quoted. Being pre-approved by a trusted LOCAL mortgage professional is the best way to know what rate you can expect to pay. We say local because many properties in this market are considered non-warrantable. Only certain lenders have investors for properties so designated. The “banker back home” is unlikely to have any sources for financing properties in Florida. Please call us for recommendations!