Factors That Help Determine Your Mortgage Rate

 The lower the interest rate, the more you can spend on a new home but 2023 is seeing a rise in the rates. If you are in the market for a new home, you want to lock in the lowest rate possible. Trusted lenders are a great resource to have when it comes to your mortgage rate. Here are four things that will help determine your mortgage rate.

Your Credit Score

“When you build and maintain strong credit, mortgage lenders have greater confidence when qualifying you for a mortgage because they see that you’ve paid back your loans as agreed and used your credit wisely. Strong credit also means your lender is more apt to approve you for a mortgage that has more favorable terms and a lower interest rate,” explains Freddie Mac.

A better credit score leads to a lower mortgage rate so you want to make sure you keep a good credit score. If your score needs improving, a lender can help with advice on how to best do this so that when it comes time to get approved, you will get the best rate.

Your Loan Type

“There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose,” comments Consumer Financial Protection Bureau.

Keep in mind that there are several types of loans and each loan will offer different terms for each qualified buyer. When looking into a loan, contact your local real estate advisor who can tell you what is available in your specific area and which types of loans it looks like you would qualify for.

Your Loan Term

Just like a loan type, there are also different loan terms that are available. These can all be different according to your situation and the life of your loan.

“When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan,” according to Freddie Mac.

Your Down Payment

“In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have a more stake in the property. So if you can comfortably put 20 percent or more down, do it – you’ll usually get a lower interest rate,” explains the Consumer Financial Protection Bureau.

If you are a homeowner and want to move, you can use the equity from the sale of your home as the down payment. A lender can help you determine the difference if you put a higher down payment down up front.

These are several factors that are looked at and will help with how much your mortgage rate will be. If you are searching for a home, go ahead and find a local sales agent and a local lender who can help you through the process.

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FHA Reducing Loan Costs for Credit Challenged Buyers

There is no question that the Recession affected both the mortgage industry as well as the home buying process when it comes to obtaining a loan to buy a new home.  Mortgage companies, lenders, and banks had their feet “held to the fire” and were required to jump through multiple hoops in all categories and steps to the loan procurement process.  Even now, on average, it takes 6 weeks to 3 months just to refinance your existing home even if you have (and have had) a steady job, money in the bank, equity in your home, and excellent credit.  The strict requirements that lenders are applying

to loan applicants are also being applied to their own corporations with stiff penalties and sanctions in store for any bank or mortgage company that even comes close to “bending the rules.”

With that being said, Fannie Mae and Freddie Mac who were able to restructure and survive the housing market falter have now found a way, along with the FHA (Federal Housing Administration) to finally bring some relief to first-time home buyers by offering loans with either a 3.5% or 3% down payment of the loan.  Now, the FHA has reduced the cost of its loan for first-time home buyers, dropping from 1.35% of the loan value to just .85% of the loan value.  The FHA provides an affordable loan to all home buyers and does not, for the most part, discriminate against home buyers who are “credit challenged,” those who may have a less than stellar credit score.  Therefore, as long as you are above the threshold of the credit score required by the FHA, your loan cost will be the same whether you are 5 points above the threshold or 200 points above the threshold.

FHA loans are the most beneficial for custom home buyers who cannot afford a 10% down payment on their loan, who may have had struggles with credit in the past, and first-time home buyers.  Fannie

Mae and Freddie Mac were established just after the Great Depression as lenders backed by government bonds in order to allow low-income Americans to be able to buy a house.  They have since privatized and restructured, but they are still focused on helping low-income or struggling families afford and pay for their new house.  With the latest reductions in down payments and loan costs, it could now be affordable and plausible for younger professionals to graduate from college, start their careers, and form their own households by buying a new home for the first time.

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