Credit Score
To start off, your credit score is one factor that can have an effect on your credit score. In almost every case, consumers with higher credit scores will receive lower interest rates than consumers with lower credit scores. Your credit report shows how capable you are to repay your loans. It has information such as your complete credit history which consists of outstanding loans, open credit cards, and your payment history.
It’s important to get a better understanding of where you stand when it comes to your credit score. If you are able to positively make changes to your credit report where changes are needed, then you will have a better chance at qualifying for better loan rates and terms
Loan Amount
The loan amount can be another major part in determining the interest rate on your loan depending on how large or small the loan amount is. Certain factors go into your total loan amount, and they vary based on the loan type you go with. More often than not these are the items that are involved
1. Home price
2. Closing costs
3. Mortgage insurance
4. Less down payment
A good way to gauge what home price you need to be looking for when you start the home buying process is to take advantage of the real estate website that are available to us via the internet. They have mortgage calculator tools to help get a better idea of where you need to be looking. OR if you are ready to start shopping reach out to us here at Princeton Mortgage, and we can get a pre-approval issued to you in less than an hour!
Down Payment
The more down payment you are able to put down the lower your interest rate is going to be. This is the case because the lender sees that you are more invested in the property and have positioned yourself in a better equity position. Ideally, you will want to put 20% down or more to get the best possible terms. In the event you are not financially capable of doing that, then there’s still a chance you can get a mortgage but you will be required to have PMI, or Private Mortgage Insurance. This added protection is used in order for the lender in the event the borrower defaults on the mortgage.
When discussing down payment options with your lender it’s important to not focus on the interest rate but ask how different down payment options will affect the loan
Loan Structure
Loans can be structured in a variety of ways. Your loan term is how long your loan is and the time frame of which you need to repay. Typically, the shorter loan terms will have lower interest rates as well as lower costs associated with the loan. Having a shorter term though will result in your payment being higher than a loan term that is longer
When it comes to loan types, a variety of programs are out there but the main 4 include; Conventional, FHA, VA, and USDA. The interest rates can be vastly different between the loan types and it’s up to your mortgage lender to offer the different products based off of the eligibility of the specific borrower.
Interest Rate Type
When it comes to the types of interest rates, they come in two different forms: fixed and adjustable. The difference between the two is that an adjustable rate will be fixed for a certain amount of time then will fluctuate based on the market. Compared to a fixed rate, which stays the same for the life of the loan. What you need to watch out for is the fact that an adjustable rate may seem more inviting at first because it may offer an initial rate that is lower, but you need to be able to understand how it may fluctuate over the following years
The Difference Between Points and Credits
When deciding what interest rate is most attractive to you it’s good to know the difference between paying discount points and lender credits. Discount points are the costs associated with having the ability to get your interest rate lower. They are an upfront fee included in the cost of your mortgage but may make more sense if you are planning to stay in your home for a longer period. Lender credits are the opposite in which you receive a higher interest rate in exchange for some aid from the lender to offset your closing costs. You end up paying less upfront but more overtime because of the higher interest rate
