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3 Factors that Determine Your Mortgage Rate

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You are buying a new house. Maybe it’s your first time; maybe it isn’t. You are looking for the lowest possible rate, but you aren’t quite sure how your rate is determined. Well, there are quite a few factors that get worked into the final determination, but there are three major ones that every home-buyer needs to know about.

Credit Score

Your credit score is a huge factor in determining whether you even pre-qualify for a loan. It definitely factors into determining your mortgage rate. Generally speaking, the higher your credit score, the lower your interest rate. Why is this? Lenders want to know who is most likely to make timely payments on their loans.

If there is an error on your credit report, this will likely spike your rate up. This is why it is imperative that you go into the pre-qualification process with a squeaky clean credit report. Resolve any errors on there as soon as possible to better your chances at a lower rate.

Down Payment

How much money are you able to put toward a down payment? The more you can put toward it, the more a lender will be inclined to see a lower risk. If you can put down at least 20%, you are likely to get a lower mortgage rate.

If you cannot put 20% down, a lender will probably have you purchase mortgage insurance (which is often referred to as private mortgage insurance). This essentially secures the lender in case you are unable to make your regular payments.

Remember, the larger the down payment you make, the lower your borrowing cost will be. Focus more on your cost to borrow since keeping this low will help you out in the long-run. This is why it is crucial that you consider all costs when you are shopping around for a loan.

Loan Amount and the Home’s Price

Your total loan cost is based on the home’s price plus its closing costs minus the down payment. This is why it is important to buy a home that is within your means, not something that is priced beyond what your budget can handle.

Typically, a lot of real estate websites will help you calculate the total loan cost. Of course, home prices vary by neighborhood, so you will need to also consider where you want to live. A mortgage program can help you with determining what you qualify for. Even programs like the USDA rural development can help you cut down on your costs and can be a smart option if you are willing to live in a rural area.

Knowing which factors will influence your final mortgage rate is important. You do not want to wander blindly into the world of mortgage rates since they can be complicated. Keep in mind how much you can afford and stick to what is within your budget. Clear up any blemishes on your credit report now for better chances at getting a lower rate. It is all about looking good to a lender.


Anica Oaks is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks.


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