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Factors Determining Your Home’s Mortgage Loan in Austin

When it comes to purchasing real estate in Austin, everyone knows the mortgage loan approval process is integral part in the home buying process. Buyers always want to know one thing: What do they qualify for? We talk of getting pre-approved for a loan, so buyers know which homes they can purchase, but not many understand how lenders determine the interest rates for your loans. They often use a process called “Risk Based Pricing,” which revolves around the risk in you purchasing the mortgage loan. Lenders have to consider questions like “Are you likely to default on your loan if we give you this much?” or “Are you at a high risk of not paying your mortgage loan?”

This is where your interest rate comes from on your mortgage loan typically. For borrowers who are considered a higher risk, they will receive a higher mortgage rate to offset the greater probability of default. Conversely, a more qualified borrower will be granted a lower interest rate (as there’s less chance of them missing a mortgage payment). But what risks determine the mortgage rate? Here’s a simple breakdown:

Risk Based Factors on Your Mortgage
by Steve Johnson

Risk Based Factors that Decide Your Mortgage Loan

  • Credit Score & History
  • Property Use
  • Property Type
  • Loan Amount
  • Loan Purpose
  • Income
  • Asset Amounts
  • Property Location

Among these risk factors, lenders will determine your interest rate for your home purchase. The more documentation you have the better. However, the single most important factor is your credit score & history. Lenders and banks want to see how you’ve managed your credit and finances. They want evidence that you can handle mortgage payments wisely.

Criticism of Risk Based Pricing

Many consumers have criticized risk based pricing because it makes shopping for the best interest rate more difficult. At first glance, it can often be hard to determine if you’ll qualify for the advertised rate. If you’d like to talk to one of our preferred mortgage lenders about the process and what mortgage rate you qualify for, you can contact them here:

Learn More About the Mortgage Process in Austin

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