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If you are buying a home or refinancing your current mortgage loan, you will want to qualify for the lowest possible mortgage rate. The interest rate attached to your home loan will affect your monthly mortgage payment amounts and how much interest you end up paying over the life of the loan. Higher mortgage rates mean more money out of your pocket across a 30-year mortgage loan. You’ll want to do everything you can to lower your rate.
Mortgage rates will vary from loan to loan. No two borrowers are the same and there are several other factors at play.
Here are 10 Of The Most Important Items That Will Affect Your Qualified Mortgage Rate
The overall U.S. economy will have an impact on prevailing mortgage rates. Issues like inflation, Treasury Bond yields, and of course, the Fed rate will help determine average mortgage rates across the country.
Real Estate & Mortgage Trends
What’s happening in the real estate market and mortgage industry can definitely drive rate trends—and vice versa. These two markets are heavily intertwined and also tend to be very cyclical over time. Understanding what’s happening in the local real estate and mortgage markets can help shape your expectations of current mortgage rates.
Your specific buying/borrowing location may affect your rate. Interest rates, taxes, fees and legal requirements for mortgage lending and property transfer processes can vary from state to state, county to county and city to city.
The Mortgage Lender
Mortgage rates can definitely vary depending on your mortgage lender. Whether you are working with a mortgage broker or a direct lender like a bank, each lending source may offer different lending options, origination fees, qualification requirements and average mortgage rates. It is always a good idea to shop around and talk with multiple mortgage brokers/lenders to find one who can get you pre-approved with the lowest rate.
The type of mortgage loan you qualify for can significantly impact your mortgage rate. First-time home buyer programs and government-backed mortgage programs like FHA loans, VA loans and USDA loans can offer more competitive mortgage rates and more accessible loan terms for a wider range of borrowers. However, there are some cases where you can get a lower mortgage rate with a conventional mortgage loan—especially if you have a large down payment and strong financial standing. Be sure to explore your different loan options. See what you qualify for and which will offer the best mortgage rate, lowest fees and payment terms.
Your credit score (aka FICO score) will be one of the key financial indicators mortgage lenders use to determine your loan eligibility and your qualified mortgage rate. They will run a credit check to get your current credit rating. Higher FICO scores generally mean lower mortgage rates. Work on improving your credit score before applying for your mortgage loan.
How much you are able to put down toward your home purchase will also be very important for your mortgage interest rate. A higher down payment usually leads to lower interest rates. Lower down payments (even with discount mortgage programs) present more risk to the lender, so a higher mortgage rate may be attached (along with mortgage insurance/PMI) to protect the lender in case you end up defaulting on your home loan.
Income & Employment
Your mortgage lender will review your current income and employment situation, as well as your employment/income history. They want to see that you have a steady income and will be able to afford your monthly mortgage payments. Self-employed mortgage borrowers may have to provide some additional documentation to qualify. The stronger your employment and income situations, the lower you can get your mortgage rate.
Your mortgage lender will also calculate your debt-to-income (DTI) ratio. This is your total minimum monthly debt payments compared to your average monthly pre-tax income. A higher DTI means less of your monthly income is available for your mortgage payments. This will typically lead to a higher mortgage rate. Lower debts will help you qualify for a lower rate.
If you are applying for a 30-year fixed rate mortgage, you will want to work with your mortgage lender to “lock in” a good interest rate during the pre-approval process. The timing can be tricky here as you want to try and get it just right based on prevailing market trends. A good mortgage broker or lender will be able to help you lock in the best rate at the ideal time. The same can be true for adjustable-rate mortgage (ARM) loans. You still want to time it right and start with the best rate possible. However, your rate will be adjusted periodically over the life of the loan based on current mortgage rates.
These are the 10 most important factors that will affect your mortgage rate. To see if you qualify for a home loan or mortgage refinance in the Atlanta area, contact Moreira Team today. We’ll help you get pre-approved for your loan and lock in the best possible mortgage rate.