People ask me this a lot, what are the rates these days? This is a difficult question to answer because rates are always changing. And, not only are the rates changing, but the rate YOU can get will depend on so many different factors! Remember, your agent should never be quoting you a rate, you should always rely on a loan officer who has all of your information to give you the most accurate rate. Here are some of the top things that will affect what rate you can get on your home loan.
Credit Score: We all know credit score is a huge factor in determining at what rate banks will lend you money. And not just for home loans, but for other types of debt as well. The higher your score is, the lower risk banks deem you to be, and they will be willing to give you a lower rate on your loan. In a bigger sense, this will affect you in more ways as well. If you have a lower credit score, you most likely have more debt in general, which will eat into your buying power for your home loan. If you're considering home ownership but are worried about how your credit score may affect your ability to buy, talk to your agent! Many lenders have credit repair programs and will get you on the road to getting your score to a good place so you can get better terms on your loan down the road.
Loan Type: Yes, different loan types will have different interest rates. Some of the most common loan types are 30 year conventional, 15 year conventional, FHA, and VA. However, there are other types as well. Each loan program will have its own average rates and within that, your rate will vary based on these other factors.
Down Payment: Your down payment amount and the loan to value ratio will determine what kind of rate you get. In general, the larger your down payment is, and the larger the down payment percent is compared to the home's value, the lower your interest rate will be. This is because bank's see you as having a little more skin in the game. If you can swing a larger down payment, you'll usually be rewarded with smaller monthly payments. However, that is just not feasible for everyone. Don't forget that when putting less than 20% down on a home, you'll usually have to pay for mortgage insurance and you'll definitely want to factor that into your monthly budget. This is why it's so important to speak with a lender prior to looking at homes, because they will give you a clear picture of what your actual payments will look like. It will be much more accurate than an online calculator!
The Property: There are a few factors regarding the actual property that can affect the rate you'll get on it. One is the location, different areas of the country have different rates of default on home loans, so in some part your rate will depend on your local economy. The property type will also affect your rate. Typically, a single family home will get the lowest rate, while a condo, manufactured home, or multi family property will be deemed a higher risk. Finally, how you intend to use the property will affect your rate. If this is your primary residence, you'll be getting a lower rate than if you're planning to use the property as a vacation home or an investment property.
While this is certainly not an exhaustive list of all the factors that will determine the rate and terms of your loan, it's a good starting point to get thinking about how you can get the best deal on your home. The most important thing is to start talking to a lender early! The more time you have to plan and strategize, the better off you'll be when you sign those closing documents!