Trying to figure out what’s going on with mortgage rates can feel like a never-ending process. Learn 3 factors that affect Mortgage rates.
Hey, I’m Anita L. Williamson, Associate Broker with James River Realty Group, and here are three key factors that can affect your mortgage and interest rate.
The first is your credit score and the financial picture. Your credit score and your overall financial picture are probably the most important considerations when it comes to getting a great interest rate. While underwriting can be stressful for home buyers, this process is how your mortgage company does its due diligence and determines the risk associated with handing you a very large sum of money to buy a home.
The stronger your credit and overall financial picture, the lower your mortgage rate will be, and this can save you thousands and thousands over the life of your loan, so it’s worth it to improve your credit and get your financial ducks in a row before you shop for a home.
Some information that will be reviewed during the underwriting process are one, your debt to income ratio. Secondly, the average of all three credit bureau scores. Also, number three is any negative items currently on your credit report. The fourth thing they’re looking for is job history, including the length of time at your current job, if there are any breaks in employment, and time worked in the same industry. Also, note, if you are self-employed prior years’ tax returns will count as your current income and you need to have two years of prior tax returns with sufficient income to qualify.
A pro tip is to make sure to gather and organize all your financial documentation prior to applying for a mortgage. It can save you a ton of time and stress in the long run.
The second tip is details about your home purchase. Lenders look into the nitty gritty details of a property when they underwrite your mortgage and determine your rate. This is one way they minimize risk. Your lender can’t finalize the details of your home loan until they know exactly how much the home is worth and any potential risks that could come up in the future. A few factors your lender will consider about the property are its location, the home price, and the condition of the property. Three, the property type. Is it a primary residence, a secondary residence, a single family, a multifamily unit, all those types of things? The fourth thing is the loan amount followed by the down payment amount. And remember, the higher the down payment amount, the lower your interest rate will be. They’re also gonna look at the sales contract details, including your earnest money deposit and any contingencies in the contract. All of these details can make a big difference when it comes to your interest rate, so make sure you talk to your lender and you understand how the specific property you’re interested in purchasing can affect your bottom line.
Now, the third tip is technical details about your loan, like loan terms, points, and fees. Another major factor in determining your rate is those technical details such as your closing costs and lender fees. If it’s a fixed rate versus an adjustable rate mortgage, are there any balloon payments in this loan? Also, upfront points and fees. And the loan period, also known as how long you have to pay back the mortgage. For example, you will get a different interest rate for a 30-year loan versus a 15-year fixed-rate mortgage. Another thing is the type of loan. Generally speaking, conventional loans versus government-backed loans, so like FHA, VA loans, USDA.
