The 4 Things That Dictate Your Mortgage Rate

Anybody who is looking to buy a home is going to want to secure a home loan and at the lowest rate possible. This was a bit easier to do in recent years but this year the financial landscape has changed with rising interest rates. However, if you are looking to do your best to combat today’s higher rates, here are some areas that you can focus on.

Credit Score

Your personal credit score plays a large role in the rate that you can get. Freddie Mac states “When you build and maintain strong credit, mortgage lenders have greater confidence when qualifying you for a mortgage because they see that you’ve paid back your loans as agreed and used your credit wisely. Strong credit also means your lender is more apt to approve you for a mortgage that has more favorable terms and a lower interest rate.” As a side note, it is best to keep from opening new accounts or making larger purchases during this time.

Loan Type

There are several different types of home loans out there these days. Start by reaching out to your local lender and seeing what you may qualify for. In the meantime, the Consumer Financial Protection Bureau states “There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose.”

Length of Loan Term

Another way to play with your potential rate is to look at the length of the term that you will take your mortgage for as the rate will change depending on it. Freddie Mac says “When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan.”

Increase Down Payment

Finally, you can consider how much you want to put down which can also lower your rate. These days many buyers who are at least second time buyers often have a good amount of equity from their previous home to put down. The CFPB shares “In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can comfortably put 20 percent or more down, do it—you’ll usually get a lower interest rate.”