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 on 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 be negatively affecting
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.
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 have to get PMI only if you don’t pay the full 20% down payment. PMI
helps protect the lender against default should a buyer not make a payment. USDA Rural Development Loans and VA loans offer loans with no down payment. Different loans can yield different rates and results.
For all terms and
types, be sure to ask your lender to compare the options for you.
Finally...
When shopping 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 loan application from you and a signed 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 to assist with all of your home buying needs! If you’re considering taking the leap into home ownership in the near future, we’re here to help. Contact us today to explore which loan program aligns best with 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. Visit www.yourlakeloan.com or
call us at (573) 216-7258 to get started today!
Michael Lasson
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