If you're in the market for a new home, you're also in the market for a mortgage loan. And when it comes to loans of any type, it's key to work with a lender you trust. That's why it's important to understand how your interest rate is determined and the factors that affect your final rate. When shopping for mortgage loans, consider these five factors and how they might influence your rate.
1. Credit Score
Your credit score represents your creditworthiness and is one factor lenders use to predict your reliability as a borrower. A credit score is calculated from your credit report, which is comprised of all your debts (existing loans and credit cards) and the payment history on those debts. Credit scores range from 300-850. Typically, if you have a higher credit score, you'll be able to obtain a lower interest rate.
Before you start looking for mortgage loans, get your credit report and check it for errors. If there are any errors, work with the appropriate credit bureau to have them fixed. You can also examine your debts and determine if there are any you can pay down to improve your score. For example, paying your credit cards down to less than 30% of account credit limits can improve your score.1
To attain a free copy of your credit report, visit usa.gov
2. Down Payment
A higher down payment usually means you'll acquire a lower interest rate, because lenders see a lower level of risk when a borrower has more invested in the property. If you're able to put down 25 percent or more on your new home, you'll most likely get a lower mortgage loan rate. A down payment of 20 percent or more also allows you to avoid private mortgage insurance (PMI), which keeps your overall monthly payment lower.
3. Home Price and Loan Amount
The price of the home subtracting any down payment is the amount you'll need to borrow for your mortgage loan. Normally, you'll pay a higher interest rate if the amount you're borrowing for your mortgage is particularly small or particularly large. If you've already started your home search, you should have an idea of the price range of the real estate you hope to buy. Real estate websites, such as Austin Home Search
, can also help you gauge typical prices in the neighborhoods which interest you. Keep the total amount you're going to borrow in mind during your home search and consider how it could affect your loan rate. Only you can decide how much you're comfortable paying each month for your home. It's also important to consider the possible maintenance costs that can come up outside of your monthly mortgage.
4. Loan Term
The term of your loan is the length of time you have to repay the loan in its entirety. Shorter terms often have lower interest rates and lower overall costs, but higher monthly payments. You can work with your lender to find the term in which you get the best rate available with a monthly payment that fits your budget.
5. Interest Rate Type
There are two basic types of interest rates: fixed and adjustable. Fixed interest rates do not change over time. Adjustable rates have a fixed period and then the rate fluctuates up or down based on the market. Adjustable rate loans customarily have lower initial interest, but your rate might increase significantly throughout the life of the loan. It's important to think about what type of interest rate best fits both your current and future financial state as well as how long you plan to own the house.
If you obtain a home loan through UHCU, you’ll get more than great rates. UHCU mortgage loan
specialists strive to make financing your home as simple as possible and will guide you step-by-step through the entire loan process – from application to move-in.
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