Instant Mortgage Rate Quote

In the U.S. mortgage industry, the term “loan purpose” refers to the reason why an applicant is applying for a loan. Lenders use this information to assess the borrower’s risk level and determine eligibility, which can also impact the interest rate offered. The most common loan purposes include purchasing a home, rate/term refinancing—where borrowers adjust the loan terms or interest rate without taking additional funds—and cash-out refinancing, which allows homeowners to borrow against their property’s equity while refinancing their loan. Understanding the loan purpose enables lenders to offer tailored loan options while effectively managing risk.

The down payment represents the portion of the home’s purchase price that the buyer contributes upfront as equity. For example, if a home is purchased for $500,000 and the buyer makes a $100,000 down payment, this equates to 20% equity in the property. Generally, a larger down payment leads to better interest rates and lower closing costs on your loan. However, if the down payment is less than 20%, mortgage insurance is typically required, adding to the overall cost of the loan. The main exception to this rule is VA financing, which allows qualified borrowers to purchase a home with no down payment and no mortgage insurance.

The loan amount refers to the total sum the borrower agrees to repay to the lender as outlined in the loan contract. It plays a key role in determining the interest rate and loan program the borrower qualifies for. For popular loan programs, such as conforming and FHA financing, specific loan limits apply. If the loan amount exceeds these limits, the borrower becomes ineligible for that program and may face different rates and fees. In general, VA loans offer the most favorable terms, followed closely by conforming loans. For highly qualified borrowers or high-net-worth individuals, select jumbo loans can also provide competitive options.

A credit score is a numerical representation of a consumer’s creditworthiness, reflecting how likely they are to repay borrowed funds. A higher credit score benefits borrowers when applying for a loan, as it lowers the lender’s risk. Credit scores are influenced by several factors, including repayment history, total debt levels, credit utilization, and the number and age of open accounts. Credit scores are a critical factor in determining the interest rates and loan costs you qualify for. Generally, a score of 740 or higher will secure the most affordable available rates. Loan terms are typically adjusted in 20-point increments, meaning the next range would be 720–739, followed by 700–719, and so forth. However, once a credit score falls below 640, loan program options become significantly more limited.

The purchase price is the agreed-upon amount that a buyer pays to acquire a property.

Property type refers to the classification and configuration of a dwelling. Examples include detached homes, townhomes, condos, and multi-family units. Among these, single-family homes generally offer the most favorable loan terms. Condos typically come next, provided the down payment exceeds 25%, followed by multi-family properties with 1-4 units. Other property types, such as co-ops and manufactured homes, often come with higher interest rates and may be more challenging to finance, as fewer lenders are willing to accept these property types.

Occupancy refers to how a property is used or who resides in it. For instance, a home may be owner-occupied, meaning the owners live in it, or it may be rented out to tenants who pay rent to the owner. Owner-occupied homes typically receive the great mortgage rates due to their lower risk to lenders. Second homes, such as vacation properties that are not rented out, come next in terms of favorable terms. Investment properties, which include rental homes, properties occupied by family members rent-free, or speculative vacant properties, have the highest rates because they carry more risk for lenders compared to primary or second homes.

A loan program or loan type refers to the specific kind of mortgage used to finance a property purchase. In the U.S., popular loan programs include fixed-rate mortgages, variable-rate mortgages, conforming loans, FHA loans, and VA loans. Fixed-rate mortgages offer a stable interest rate for the life of the loan and are available in various terms, such as 30-year, 20-year, or 15-year fixed options. On the other hand, adjustable-rate mortgages (ARMs) start with a fixed rate for a set period—often 5, 7, or 10 years—before transitioning to a rate that adjusts annually. Each loan program has its unique features, making it essential to choose one that aligns with your financial goals and situation.