Mortgage loans are an important part of the American economic system. They allow many people to buy their own house, get out from under a burdensome rent payment and afford some measure of financial freedom. This blog post will help you understand how your personal factors affect your interest rate on a mortgage loan such as credit score, debt to income ratio, and loan to value.
1. The size of the loan
The amount of money you are borrowing for the mortgage will have a big influence on your interest rate. The size of the loan is most influenced by the purchase price of your home, which can be determined by looking at comparables in an area with similar property values and amenities to yours. If you want to know how much house you qualify for speak with a qualified mortgage expert to get a pre-approval today.
2. Your credit score and history
Your credit is another significant factor in determining the interest rate of your mortgage. A credit score is calculated based on a variety of factors, including timely payment history and total debt load. The higher your credit score, the better terms you will get when applying for a loan because you are seen as less risky and in turn will get a better interest rate.
3. Your income, assets, and debt-to-income ratio
Your income, assets, and debt-to-income ratio all play a role in determining how much you can afford to borrow. The lender wants to make sure that you are not overleveraged as that type of mortgage has a higher chance of defaulting leaving them without their money.
4. The type of property you're buying (condo vs. single family home)
If you're looking at buying a condo, your monthly mortgage payment will be much higher. This is because of two key components, HOA and interest rates. Condos don't hold their value well, are hard to resell and are usually involved in some form of litigation. Due to this, the interest rates on these types of mortgage tend to be higher.
5. Whether or not you have a co-signer on the loan
If you have a co-signer or co-borrower it can help make the loan less risky. If you use a strong co-borrower with immaculate credit and assets, they may be able to bring the interest rate on your loan down. If you are planning on buying the home with someone, include their information on the application so that your loan officer has the entire picture.
This will allow them to issue an accurate pre-approval and ask any questions that could cause the deal to fall apart if left until too late in the process.