Five Factors That Impact Your Mortgage Rate
There are a lot of factors that come into play when it comes to your mortgage rate. Many of these factors, like inflation, the bond market, and the economic growth rate, are out of your control. However, once mortgage rates are set, there are some things you can do to ensure you get the best possible mortgage rate. Let’s discuss five factors that impact your mortgage rate.
1. The Amount Of Your Loan
You may be surprised to learn that smaller loans tend to come with higher rates. This is something to keep in mind if you are looking for properties under $150,000. On the other hand, if you are in the market for homes that require a Jumbo loan, those come with higher interest rates. Jumbo loans are used on multi-million dollar properties and have stringent lending requirements.
2. The Down Payment Amount
Many loans will allow a borrower to be approved with a loan down payment amount. While this is a great way to get yourself into a home of your own, it does come at a cost; your interest rate will be higher. In order to get the lowest possible mortgage rate, you should consider a conventional loan and come in with 20% of the home’s purchase price as your down payment.
3. Type of Property
Your mortgage rate is also based on the type of property you are purchasing and how risky an investment the lender considers it to be. Properties like condominiums and manufactured homes come with more perceived risk and a higher mortgage rate than a single-family home would. Single-family homes tend to appreciate in value more quickly and sell faster than other types of properties, so you will likely be given a lower mortgage rate if you decide to purchase a single-family home over other property types.
4. Your Loan Type
Did you know there are different types of mortgage loans available to homebuyers? These different loans have different requirements the borrower must meet to be approved. Va and FHA loans, for example, allow a lower credit score and down payment amount than a conventional loan does. However, you’ll also have a higher mortgage rate with a VA or FHA loan. Conventional loans tend to have the best mortgage rates, so make sure to talk to your lender about the requirements to see if you’d be able to qualify.
5. Your Credit Score
Maintaining a high credit score is essential to getting the best possible mortgage rate. Typically, the higher your credit score is, the lower your rate will be. Your credit score is based on your payment history, your account balance compared to the account limit, and the age of your accounts. If your credit score needs some work, you need to do everything you can to make your monthly payments on time and pay down your credit cards. Getting your account balance below 30% of the credit limit will help your credit score significantly.
Not only does your credit score impact your mortgage rate, it will also play a role in how much you pay for homeowner’s insurance. So, if you’re hoping to get a lower rate on your homeowner’s insurance, try to raise that credit score quickly.
Ready To Go Shopping?
If you’re ready to start shopping for a new home, let us help you find the right loan to get the process started. We will go over mortgage rates and anything else you are concerned with regarding the home buying process. Give us a call!