A Guide to Your Mortgage Interest Rate
Mortgage interest rates are a reflection of how much risk a
borrower and their new home can possibly carry. The less risk your lender
feels, the likelihood of you receiving a positive interest rate will increase.
But hey, no worries, you’re more in control than you think.
Beyond external forces like the housing market and general inflation, listed
below are the ingredients of a mortgage interest rate that you have complete
control over.
Credit Scores
The best-known detail of a mortgage rate is your FICO credit
score. Before you start any mortgage shopping, check it out and review your
credit reports for errors. Certain slip-ups can lead to a lower score,
preventing you from qualifying for better loan rates and terms. Make sure to
check this early in the process. Lenders are looking to offer mortgages to
those with high credit scores, and the higher your score, the lower the rate
you might qualify for.
Below is a recap of what affects your score:
- Late
payments: If you don’t pay things on time, had an account sent to
collection or declared bankruptcy, these all can negatively impact your
credit score.
- Length
of time on open trade lines: Sometimes a short history can have a negative
impact, but if you’re making payments on time and have low balances, you
can offset that negative impact
- Number
of inquiries in a short period of time: It might sound ruthless, but too
much uncertainty about the state of your score can affect it negatively.
- Sprawling debt: If you’re spending too close to the limits, this could negatively affect your score as well. A healthy expenditure means you should use less than 20-30% of your available credit, keep good-standing accounts open for long periods of time and avoid opening too many new accounts.
Total Loan Amount
The size of a mortgage loan and, to a degree, the price of a
home, is another influencer. Loans too large or small are perceived as bigger
risks.
- Danger
zone: If your loan exists in the sweet spot between $100,000 and $766,550,
then you’ll have fewer chances of a spike in your interest rate. Living
outside those lines might cost an extra nickel.
Home Location
One of the more overlooked factors is the health of the
housing market within a state or county. If a lender is less worried about the
area’s risk of default, you’ll likely see a lower rate. The surrounding house
prices can also make an impact. Living near water (more expensive) or in a
rural area (less expensive) could change the amount of your mortgage and put
you into the zone where lenders may charge a higher rate.
Loan Term & Type
Or, in other words, promptness and assistance.
Your loan’s term is how long you have to pay back the loan.
Usually, you'll find that short-term loans have lower interest rates but do
have higher monthly payments.
Regarding the types of loans, there are several broad
categories of assistance, such as conventional, FHA, USDA and VA loans. Rates
significantly differ based on which type you choose. Conventional loans require
anything between a 3-20% down payment, while FHA needs as little as 3.5%, and
it can offer more attractive interest rates. A similarity between the two is
that conventional loans and FHA loans require homeowners to purchase private
mortgage insurance (PMI), but with conventional loans, you only need PMI if you
don’t pay the full 20% down payment. PMI helps protect the lender against
default should a buyer not make a payment. Different loans can yield different
rates and results.
For both terms and types, be sure to ask your lender to
compare the options for you.
Finally...
When shopping for mortgage rates, be aware that the one you
get over the phone could be completely different in a matter of minutes.
Lenders can’t always guarantee a locked-in rate until they have a fully
executed contract on the home you’re purchasing.
It’s not just one ingredient over the other — each factor
contributes to the overall recipe that’s personally refined by you. All you
need to do is keep these five major components under your scrutiny and your
long-term wealth will rest much easier.
Team Lasson is here for all of
your home buying needs! If you’re
thinking about making the leap into home ownership in the near future, please
contact us today to get started. We can
help you determine what loan program works best for your financial goals. The first step in preparing for your big
purchase is to get pre-approved for a mortgage at Lake of the Ozarks. Please visit www.yourlakeloan.com or
give us a call at (573) 216-7258 to get started.
Senior Mortgage Banker
NMLS #: 493712
Flat Branch Home Loans – Team Lasson
2882 Bagnell Dam Blvd
Lake Ozark, MO 65049
Cell: (573) 216-7258
Email: teamlasson@fbhl.com
Website: www.yourlakeloan.com
**The
postings on this site are my own and do not necessarily represent Flat Branch
Home Loans positions, strategies, or opinions.
Flat Branch Home Loans
NMLS 224149. A Division of Flat Branch Mortgage Inc. For more licensing
information, visit NMLSConsumerAccess.org
