First-time home buyers may have an idea of what will affect their rates as they apply for a mortgage. But many have an incomplete picture of just how many matters factor in. And going into the application process not knowing all those factors could cost borrowers thousands of dollars over the life of the loan.
Of course, two of the more significant factors are credit score and the amount a buyer can pay for a down payment. But those aren’t the only ones. There are several more that can make a difference. And even if the difference is only a fraction deducted from a mortgage rate, that could save buyers quite a bit of money.
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The Type of Loan
The most types of loans offered are conventional, Federal Housing Authority (FHA), Veterans Administration (VA), and US Dept. of Agriculture (USDA). Lenders decide which of these types of loans they want to offer. FHA, VA, and USDA loans are backed by government agencies, whereas conventional loans are not. Each loan has different requirements borrowers need to meet.
Terms of the Loan
How long a borrower takes to repay affects rates. Loans with shorter terms often come with lower interest rates but the monthly payments are higher than loans with longer durations (15-year mortgages compared to 30-year loans, for instance).
The more borrowers put toward a down payment, the more likely they are to get lower interest rates. The reason is lenders often see those who put a significant amount on a down payment are less of a risk. So, if borrowers can afford to put at least 20 percent down or more, they will often get a lower interest rate.
Urban vs. rural can sometimes affect interest rates. So can state and county location. Depending on the loan type and location, some areas have higher rates, some have lower.
Home Price and Loan Amount
Loans that are exceedingly small often carry higher interest rates. Those loans that go above the Fannie Mae and Freddie Mac limits for conventional loans do too. The latter is referred to as a jumbo loan and the most common reason for those types of loans having higher interest rates is because lenders might look upon such loans as being more of a risk for default.
We at Better Lending are committed to getting the loan that is right for you and guiding you through the process with minimal stress and anxiety. To speak with one of our qualified loan advisors, call us at 888-400-1373.
When starting to research getting a mortgage by learning the difference between Freddie Mac and Fannie May.
When looking at how to calculate what an affordable home is, the first step is estimating what your principal and interest would be.
When thinking about pre-qualification vs pre-approval it’s about following all the application procedures for first-time homebuyers.