4 factors mortgage lenders consider when determining mortgage rates
By Academy Mortgage Corp.
Buying a home is a busy time, and if you're in the market for a residential mortgage, there are no doubt many things on your mind. For many homebuyers, a big concern is finding a low interest rate.
Securing a low rate early on is important. However, some consumers have concerns about being eligible for a low rate or worry about what factors their mortgage lender will take into consideration. There's no need to fret over this. The truth is, there are several pieces of information underwriters review before deciding what rate is appropriate. The good news is, it's all information you can find and review, too.
Here are four criteria you can easily look up that help determine your interest rate:
Your credit score will play an important part in determining your mortgage rate, the Consumer Finance Protection Bureau stated. Since a higher score generally means you're good at managing debt and have a track record of paying bills on time, consumers with scores on the upper end of the scale are typically awarded more favorable interest rates.
However, that doesn't mean those that have average or less-than-average scores won't be able to secure an affordable home loan. There are plenty of mortgage programs tailored to people with a wide range of scores.
To find your credit score, request your credit report from www.annualcreditreport.com.
In your lender's eyes, the more money you pay upfront, the less of a risk you are as a consumer. Therefore, those who are able to make a larger down payment could enjoy a lower interest rate.
That said, this doesn't mean that people who aren't able to make a 20% down payment won't be able to obtain an affordable loan. There are some mortgage programs, like VA loans or USDA loans, that don't require a down payment at all. Plus, lower down payments are becoming much more common.
Interest rate type
You have two basic options for choosing a loan type: fixed or adjustable.
A fixed rate means that your interest payment will stay the same for the entire life of the loan, no matter what your loan term is or what the market does during that period of time.
An adjustable-rate mortgage means that your rate will stay the same for the first couple years - usually 3 or 5 - and then change annually based on market conditions. This means it could increase or decrease.
Adjustable-rate loans are typically less costly than fixed-rate loans to start out with, but many consumers find that, after that initial period of the same rate is over, their monthly payments can become harder to manage. Sometimes, a fixed-rate mortgage may be the most economical option for its consistency, even if the rate is higher than the introductory rate of an adjustable-rate mortgage.
One factor lenders take into consideration that you have control over is whether or not you choose to pay points, The Truth About Mortgage reported. Paying what are called "discount points" essentially means paying interest ahead of time in exchange for a lower rate. Every lender handles this process differently, but in general, one point is equal to 1% of the loan. The more you pay, the lower your rate will be, though you'll need to speak with your lender to determine how many points paid upfront would be worthwhile in the long run.
Additionally, it's worth noting that these points are different from origination points, which are basically a fee charged by lenders with no effect on your interest rate.
To learn more about what rate you may qualify for, reach out to Academy Mortgage.
Academy Mortgage is one of the top independent purchase lenders in the country as ranked in the 2016 CoreLogic Marketrac Report. Visit www.academymortgage.com to find a loan, get a rate, or calculate your payment today.