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What’s My Rate?

When I was a boy growing up in central North Carolina, one of the expressions that my grandfather used whenever he was asked a common question was “If I had a dollar for every time I get asked that question I would be a millionaire.” It’s the same today as it was then because as a mortgage loan officer with Movement Mortgage, the most common question that I get asked by someone that I meet for the first time is “What’s My Rate?” 

Well I will tell you what I tell them… I have no idea!! Now your first thought might be “How does a loan officer not know my rate?” Well I’ll tell you. It’s because I don’t know you and your situation or what you are looking for. To understand what I mean you must first know what it is that determines your rate. The primary factors, other than the prime rate, that go into the rate determination are:
· Credit Score
· Loan to Value Ratio
· Debt to Income
· Loan Amount
· Term
I will cover all five of these.

Credit Score: Also known as your FICO score, A FICO score is a 3-digit number used by lenders to evaluate the risk associated with lending money and it is generated by a mathematical model created by Fair Isaac Corporation (FICO) in the 1960’s.  There are 3 major credit bureaus: Equifax, Experian® and TransUnion® with scores ranging from 300 - 850.
Credit score rankings are:
Above 750 Excellent
700 - 749 Good
650 - 699 Fair
550 - 649 Poor
Below 550 Bad
Your credit score is comprised of five main areas:
Payment History: Late Pays, Collections, Charge-Offs, Prepossessions, Foreclosures, Tax Liens, Bankruptcies, Judgments.
Amounts Owed: Credit Cards, Mortgage Loans, Auto Loans, HELOCs, Installment Loans.
Length of Credit History: Length of time you have a track-able credit history.
New Credit: Soft Inquiries and Hard Inquiries.
Types of Credit Used: A Mortgage Loan, An Auto Loan, 2-3 Major Credit Cards.
Rate Result: The higher the score the better the rate.
Loan To Value Ratio: A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. Example: Home is appraised at $200,000.00 and the mortgage loan is for $190,000.00 then the debt to income ratio would be 95%.
Rate Result: The lower the ratio the better the rate.
Debt to Income Ratio: Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.  This number is one way lenders measure your ability to
manage the payments you make every month to repay the money you have borrowed. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.  For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. ($2000 is 33% of $6000.)
Rate Result: The lower the ratio the better the rate.
Loan Amount: Your home price minus your down payment is the amount you’ll have to borrow for your mortgage loan. Typically, you’ll pay a higher interest rate on that loan if you’re taking out a particularly small (less than $100,000.00) or particularly large loan (over $424,100.00).
Rate Result: A loan amount that does not fall between $100,000.00 - $424,100.00 will have a higher rate.
Term: The term of your loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. 
Rate Result: The longer the loan the higher the rate.
Well I hope that this information has been helpful. If you are contemplating buying a home then the first step should be in getting a pre-approval from your lender of choice. I would be honored to offer any assistance possible and answer any questions. You can either call, 919.418.0325, email, .(JavaScript must be enabled to view this email address) or visit my site at http://www.movement.com/john.ellis. I look forward to hearing from you.