If you’re in the market to buy a new home there are many things to consider that most individuals aren’t aware of. One of those things is a mortgage rate.
Mortgage rates are usually a fixed percentage, amount or figure that is determined by a lender or bank. While most rates are fixed, some can be variables or fluctuate with a benchmark interest rate. When looking to ascertain a mortgage rate it is determined by e comprehensive credit profile - in addition to housing market rates. Depending on how the housing market is doing, a different rate may be assessed by the lender and it’s important that you, as a new homebuyer, take these considerations into account.
As discussed above there are many indications when it comes to accessing a mortgage rate. One of those indicators is called a “Prime Rate”. A Prime Rate represents the average rate that banks are offering for credit. Prime rates are reserved for highly qualified borrowers and follows the Federal Reserve’s funds rate at a percentage of adjustment of an additional 3%. What this means is that whatever the Federal Reserve’s funds rates is, you can expect to pay 3% higher.
Another indicator for borrowers is also the Treasury Bond’s 10-year yield. This yield helps in assisting with marketing trends over time because it goes back ten years. This is done because even though most mortgages are calculated based on a 30-year time frame, it’s not uncommon for the buyer of a house to pay off the loan earlier.
When a lender decides to grant the consumer a loan, there is always the possibility that they may default on the loan. Gaining insight into a customers credit history over time and how they prioritize their obligations to past lenders can help a new lender determine the probability of a mortgage being paid in full. The higher the overall risk, the higher the rate. A high rate ensure the lender will recoup the initial loan amount faster in case the borrower defaults.
While many factors go into a consumer report to measure these variables, a borrowers credit score is the key component in assessing the rate of a mortgage loan and it’s total amount. Higher scores yield lower interest rates because the risk is lower. Therefor, all consumers and borrowers alike should seek the lowest rate possible when their credit score has reached a favorable range.
Reduce The Amount of Debt You Owe - When lenders are looking into your consumer information and credit reports to access mortgage rates, they are determining what your debt to income ratio is. Basically this is a percentage that determines what amount of your income is already being taken up by other obligations and payments. As a rule of thumb, your credit ration should hover at 25% and never exceed 30%.
Payment History Factors - Another way to help your debt is to pay your bills on time. A payment that goes 3 days past due automatically impacts your credit negatively. If you have missed payments, get current immediately and stay current. Note: Please be aware that paying off a collections account will not remove it from your credit report. It may increase the likely hood of lenders providing loans because you have attempted to rectify the issue, but it does not mean it will not hurt you.
Keep Credit Cards Open - To have credit, you must be utilizing credit. If you have cards open, do not close them. Attempt to keep the balances low and at the 30% debt to income ratio aforementioned above. This will over time increase your score.
At Priority Lending LLC we help our clients access the best possible mortgage rates available to them. If you’re on the market for a new house in Tucson, AZ, we would love to help you secure a loan for your next biggest asset.