In the quest for a home, one of the first questions a borrower asks is: What is the interest rate today? The answer often times has to do more with the borrower then the lender. Surprised?
Here’s how borrowers can impact their interest rates.
Credit Score: Lenders use your credit scores to predict how reliable you will be in repaying your loan and is the most significant variable in deciding your credit score. In general, consumers with a higher credit score receive a lower interest rate than those with buyers with lower credit scores. Mortgage rates vary considerably between credit scores of below 640 and above 740.
Down Payment: Because mortgage lenders see a lower level of risk when you have more stake in the property, a larger down payment can mean a lower interest rate. With 20 percent or more down, your interest rate will be lower. There are loans available with good interest rates that require PMI which is mortgage insurance to protect the lender in the event a borrower stops paying their loan.
Loan Amount: Depending on the size of the loan, home buyers can pay higher interest rates on loans that are particularly high or low. The lender will have to adjust the rate due to the costs of a smaller loan and the risk factors that come with a large loan amount.
Loan Term or Duration: The term or duration is how long you to pay the loan back to the lender. Typically, shorter term loans have lower costs and interest rates, with higher monthly payments. Longer term loans will have monthly payments because they are spread out over a longer time period. Your Michigan Mortgage loan officer can analyze your unique situation to guide you to the best loan for you.
Loan Type: There a number of loan types to choose from, all having different eligibility requirement. Rates can vary significantly depending on what type of loan is chosen. The most common types of loans are known as conventional, VA, RD, and FHA loans. You can learn more about the different loan options by visiting our website.
Home Location: Often times, lenders offer slightly different interest rates depending on the state they live in. whether you are purchasing in a rural or urban area can also be a factor. So, it is important to talk to a local lender versus a national lender to get accurate rates.
There is no cookie cutter process to determine your interest rate. By understanding how your interest rates are determined will give you a better understanding of the best loan and interest rate for your unique situation. Mortgage 1’s highly knowledgeable loan officers can guide you to the very best loan for your needs.