Buying a home is an important investment that requires careful planning. The search for your perfect home may seem like the most complicated part of the homebuying process, but choosing the perfect loan has its own challenges. Working with a lender to determine the best loan for you is the most foolproof way to ensure you get the best loan for your family.
While there are a few variables you can’t control when determining your mortgage rate, there are five main factors that will help you lock in the best rate.
1. Credit Score
Your credit score is one of the most important factors when determining your loan rate because it determines the amount of risk the broker is taking if they choose to lend to you. There are a few different factors that go into your credit score, like debt-to-income ratio, established history, number of credit accounts, etc. However, if your credit score is below average, remember that you do still have options for securing a home loan. There are lots of programs, such as USDA and FHA, that have a lower required credit score.
2. Loan Type
Different loan types have different eligibility requirements, and thus have different rates. Determining what loan type you want early can help you anticipate what your rate will look like. There are many variables that go into distinguishing loan types. For example, adjustable or fixed rates will determine if your rate will change over time, and the term of the loan will determine how long you will pay on your loan. Your lender will help you figure out what type of loan will work best for your situation.
3. Down Payment
Whether you have a down payment saved or not could potentially change the rate of your loan. When you make a down payment, you are essentially putting more equity into your home up front. As a result, you’re financing less which can change the overall rate and term of your loan. If you don’t have a down payment saved but still want to buy a home, don’t fret! There are a multitude of down payment assistance programs that your lender can help you research.
4. Loan-to-Value Ratio
The loan-to-value ratio is the amount of the mortgage compared to the appraised value of the home you are buying. There are a couple situations where this may come into play. The first is if you are making a down payment. You want to ensure that you’re putting enough down that your LTV will remain at a ratio that is not too high. The rule-of-thumb to secure the best LTV is to keep it below 80%, but that is not a requirement for getting your rate down. Another situation where LTV may come into play is if you’re buying a fixer upper. If you’re rolling in quotes from contractors and costs for repairs, your LTV might end up higher than 80%. A higher LTV won’t necessarily mean a skyrocketed rate, but it may still affect it, depending on your specific situation.
5. Location
Location can play a role in determining your mortgage rate in a few different ways. The main reason is that specific geographic areas may qualify for specific loan programs. For example, if you live in a rural area you might qualify for an FHA or a USDA loan, whereas if you’re in a city your best bet might be a conventional loan. Your lender will help you determine what programs you qualify for, and help you find the best loan for where your new home is.
There are things you can’t control when it comes to your mortgage rate, namely the housing market and inflation, but working with a lender will help you determine the best time to buy. The experienced lenders at Flat Branch Home Loans are constantly watching for market changes so they can help you get the best rate for your situation. Contact a lender today to get your homebuying process started!
