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Why Interest Rates Can Vary Getting a loan in the olden day was easier since it did not involve a lot of considerations. Not a lot of questions. It just happened. This made comparisons for interest rates to an easy task. Today’s mortgage world does not provide an easy way to compare them. In fact, say you’ve got two customers buying identical homes in a development. The clients may however be quoted different interest rates. Even if they have the same credit score. That’s because you’re granted different discounts or assessed with different cost additions for various aspects of your lending profile. Taking different types of loans may also be a major factor driving this, one client may pick a Federal Housing Administration loan while the other may take a conventional loan. With FHA and a credit score of 620, there are no discounts or additions for credit score that a lender will add to the total price. But, dip below a 620 and there will be quite a pricing differential. With a conventional loan, you’ll get discounts the higher your credit score. Thus, a 620 credit score in the conventional realm does not have as much interest rate muscle as a 720. A typical lender nowadays has to be really good at reading a chart to quote a loan in the conventional world.
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How big or small a loan is may cause a interest rate differentials. Big loans attract high discounts. Moreover, financing a smaller loan is mainly costly.
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The difference in interest rate may be caused by difference in the intention for buying a house. An investment property tends to give poorer rate as compared to if the property was used as a second home or residence. From an underwriting perspective, a borrower is less likely to quit paying a mortgage for a property that is intended for personal use. As observed before, the type of loan taken matters too. Conventional rates are different than FHA rates, which are different than VA rates, which are different than Rural Housing rates. The interest rates are different even when they are buying the same house. Some loans are only for a specific group of people for example, it is only the veterans or their wives get this loan. And you can’t get a rural housing loan if you’re in the wrong zip code and make too much money. This means that for most of us, they choices are always limited. The payments may differ even when the interest rates are the same. If your loan requires mortgage insurance, your monthly premium could differ because of your credit profile. It is very vital for one to be patient before considering a loan program. Patience is required before considering payments and loan programs. Make sure you explore all your options.