What determines my interest rate? - There are a great number of factors that affect the interest rate that you will receive on your mortgage loan. Lenders base the interest rate on how much risk you represent to them. They are lending a considerable amount of money, and need to know that they will receive a safe return on their investment.

The main and most obvious factor in determining your interest rate is going to be your credit history and your credit scores. Your credit actually affects many different things other than just mortgage interest rates. Your homowners insurance premiums, auto-insurance premiums, credit card rates, all other loan rates, and much more. This is why it is very important to keep your credit in good standing, all payments made on time, and not to let accounts go into collection.

The mortgage program can also determine your interest rate. Obviously 30 year fixed rates will be different than 15 year fixed rates. The same is true if you are doing a stated income, or no doc loan. The less documentation, the greater the chance that the interest rate will be higher.

The residency status of the property will also affect your interest rate. Investment or Non Owner Occupied properties will carry a higher interest rate due to the increase risk involved.

Loan to value ratio is another key driver of the interest rate. That is, the amount of the mortgage loan divided by the appraised value of your home. If below 80%, you'll qualify for the best rates. As the LTV increases, rates will also increase as this represents additional risk for the lender.

The type of property being used to secure the mortgage may also have an effect on the interest rate. It is no secret interest rates on commercial properties are higher than that on residential houses. Some banks also charge higher interest rates on cooperative units.

The type of documentation you can provide to verify income can affect the interest rate. The least amount of risk and thus the lowest rate is for full documentation, W-2s and pay stubs. The most amount of risk is for "No Doc" loans. There are many different levels in between with varying ways to document the income. Your mortgage broker can help you determine what type of documentation is appropriate for your situation.

Your payment history on your mortgage is also very important. Obviously, if you have never missed a payment on your mortgage you will qualify for the highest rating. Typically lenders will review your payment history over the last 12-24 months.

What determines my credit score - Credit scores have become very important to consumers for a variety of different things. Your credit score determines whether you will be, approved, declined, required to place a large down payment, or have to obtain good or very unfavorable terms for not only mortgages, home loans and cars, but for a variety of other things as well. Your credit and credit scores can now play a major role in determining what premiums you pay for homeowners and auto insurance, whether or not a utility company (phone service, gas service, electric, etc...) will require you to place a deposit down to get service turned on (and how much of a deposit), your rate and determine whether you will be approved or declined on personal loans and credit cards, whether or not you are able to rent an apartment or home, amongst many other things. Many employers now look at a potential employees credit report before hiring them. Therefore, you can see how credit and credit scores can play an important role in your life and with bad credit it can force you to pay higher interest rates, higher payments and higher premiums on numerous different items. There are many factors that help contribute to determine a persons credit score that you will learn about here.

Whether you pay all your bills on time is probably one of the more important aspects that determines your credit scores. Most companies that extend credits to you report to the major credit repositories on a regular basis. Any late payments history will have a negative effect on the credit scores. The more recent the reported "lates", the higher the impact on scores. Lender banks consider mortgage payment "lates" much more severe than credit card late payments, and punish homeowners with mortgage "lates" accordingly with higher interest rates and/or lower loan amounts.

Your credit report will list any collection or charged-off accounts that you may have. Having these kind of accounts reporting will definitely have an adverse affect on your credit score. A word of caution though. Paying off collection accounts, especially older ones may cause your credit score to go down, at least in the very short term. If you are applying for a mortgage please consult with a mortgage professional such as myself before paying old collection accounts.

The number of recent inquires has an affect on your score as well. Although it does not carry as much leverage as many other factors in determining your credit score you should still avoid having your credit checked unless nessecary.

The companies that determine your score do not fully disclose all the inner workings of what goes into your score. Granted they tell you what percentage of types accredit help or hurt you but they dont get into the nuts and bolts of it all. There are however some basic rules of thumb. One rule of thumb is to have your balance be lower then half the highest available balance. So if your highest available balance on a visa card is say 10k. Make sure your actual balance is below 5k.

There is also a seasoning factor. Someone who has maintained good credit standings for a long period of time will generally have a higher score then someone who just established their credit.

The number of open accounts you have influences your credit score. Less than 3 or more than 5 can decrease your score.

If you have had a bankruptcy, you can expect it to stay on your credit report for up to 7 full years. Although it will still show, there are ways to still increase your credit score after a bankruptcy.

++