Often times, I am being asked what factors will govern mortgage interest rate? First of all, if your loan amount is higher than $417,000 and thus is considered “High Balance.” High balance loans has slightly higher rate than conforming loan (amount less than $417,000). Second thing to pay attention to is your “debt-to-income” (DTI) ratio which is an indicator on your ability to repay the loan. If it is higher than 45% which is most lenders’ upper threshold of mortgage qualification, you may not qualify for the loan or your loan may have to go to higher interest rate. In addition, in order to qualify for a conventional loan, most lenders require you to have a loan-to-value (LTV) ratio of no more than 80-95%. The higher your home's value and the less you owe on it, the lower your LTV ratio. Lenders typically require two or more monthly mortgage payments in your bank account as reserves to cover your mortgage payment in case of unforeseen circumstances. Last but not least, if you are short of reserve as required by the lender, your loan will go to another program which may result in higher in interest rates.
