A lot of buyers have one question for the lender when they start the process of looking for a home…”What is the interest rate?” OK…I wish there was an easy answer. A lot of different things can affect what interest rate you will get with your loan. Below are 6 of the main factors that go into a loan rate:
1. Credit Score: Your credit score is something mortgage companies use to determine how reliable you are in paying your bills and exactly how much debt you currently have. It’s a good idea to talk with a mortgage professional before you go out looking for a new home. We can pull your credit score and see if there are any items on the report that shouldn’t be there so you will be able to get them correct and raise your score. Always keep in mind that the better your credit score the lower your interest rate.
2. Home Price/Loan Amount: The difference between that price of the home and the amount that you are putting down will be your Loan Amount. Usually, you will find that your loan rate will be a bit higher for a smaller loan than it will be for a larger loan.
3. Down Payment: When purchasing a home, it is common to find that the more you put down on a new home, the better your mortgage rate will be because lenders seem a smaller amount of risk in lending money.
4. Loan Term: The term of the loan is, how you long you take to repay the loan. Typically, a new home owner would take out 30 year loan to make the monthly payments lower. If you took out a 15 year loan, you would be able to repay the faster and save thousands on your loan but your payments would be higher.
5. Interest Rate Type: Interest rates come in two different types: Fixed and Adjustable. A fixed rate loan amount will not change over time where an adjustable rate loan may start off a bit lower at the beginning but could increase gradually over time.
6. Loan Type: There are sever different types of loans that are available: Conventional, FHA, VA, Rural Development and 203(k) loans. Each one has a different purpose and an different interest rate.
As you can see, it’s little more complicated that just saying, this is you interest rate. And this is why it’s a good idea to get Pre-Approved before you go out looking for that new home. Please contact me today to begin the Pre-Approval process.