So, right now, we’re seeing a lot of people that are really concerned about interest rates. They’re wanting to find out, how do they get the lowest rate as we start to see interest rates rise?
So, let’s kind of go through this a little bit, and there’s a reason why I want to talk to you about it right now. People will call me and say, “Bob, I want the lowest rate I can get.” And I’m like, “Great. Let me get a couple of questions to answer before I can quote you the rate.” They’re like, “No, no, no. I just want… Quote me a rate.” I’m like, “Okay, well, 2.5%.” They’re like, “Well, that’s for a 30 year fixed?” I’m like, “No, that’s why I got to ask you some questions.”
So, everybody guys, we’ve got to start with just a couple of small questions. One, we want to know what type of loan term are you looking for? Like a 30 year, a 15 year, maybe a 5/1 ARM, 3/1 ARM. All of those are going to have different rates, and we also want to know what type of loan are we talking about? Conventional, FHA, VA, USDA, because those also determine the interest rates.
Now, once we have those two things, we can kind of get into a couple of other big, big parts of what gets you the lowest rate. One is going to be credit score. Okay. We got to know what that credit score is. Now, I don’t have to pull credit to quote your rate, but I want to know, based on your analysis, what you feel that credit score is. Is it 680? Is it 720? Is it 780? Because each one of those will come with a different interest rate. Okay? And then, I need to know debt to income ratio. So, I want to minimize it. I want to know how much debt do you have compared to the income that you’re making. So, that DTI does play a factor in it.
Those are the things that we ask. And if you were to go online and you go to these online sites, you’re going to have to answer those questions as well before they actually quote your rate. Now, some of them don’t do that, and that’s where we get into a bit of a challenge. I get clients that come to me and say, “Bob, I want this rate.” Well, yeah, guy. That rate needs a 780 credit score with 30% down, and that is either on a 5/1 ARM or a 30 year fixed. But the reality is, you were looking for a 3% down, and you have a 680 credit score. So, be cautious of those that just provide a rate upfront without going through and asking all these questions.
Now, once we do that, I can give you a really solid idea of what that interest rate is going to be. And so, we move to the next piece, because now this is where you get into a trusted advisor. Okay? So, sometimes it’s not always about the rate that gives you the lowest total cost of ownership. So, I’m going to ask some more questions, like how long you plan on keeping the loan. What are we going to be using it for the long term? Because maybe, just maybe I can show you a way where a different type of loan with maybe a little bit higher rate gives you a lower ownership cost over the period of time. Or, we need to use your money a little bit differently. Like for instance, I had a client that wanted to put more money down, because she felt was going to drive the lowest payment. And I said, “How about we put a little bit less money down, and use some of that money to buy down the rate?” Which, in effect, over that 15 years that she was keeping this house, allowed her to pay less interest over that term than just putting the extra $5,000 down towards the principal balance.
So, a lot of structure that goes into it, and that’s why you need to work with a trusted advisor. So, look, all my digits are going to pop up. If you have any questions, please reach out to me. Give me a phone call. Go online. Love to be able to take care of you. Have a great rest of your week.