Factors that influence mortgage rates

While interest rates are most heavily influenced by market fluctuation, there are certain things that a homebuyer have control over. These things can improve, or worsen, your qualified interest rate.

Factors that influence/affect what mortgage rates homebuyers can qualify for. Many of these factors  are in homebuyers control, such as; Credit Score which can affect the ability to qualify for a mortgage. But did you know that your Debt To Income ratio (DTI), Down payment amount, and your Repayment Terms are also major factors. Improving these factors could help you qualify for a lower interest rate.

Credit score — Generally, the lowest interest rates go to borrowers with the highest credit scores. Improving your credit score before you apply for a mortgage could help you secure a lower interest rate than you’d get with a lower credit score. It may also help you qualify for more Down Payment Assistant Programs.

Debt-to-income ratio — DTI is a percentage that compares your total debts with your income. To calculate DTI, divide your monthly gross income by the total of all your monthly minimum debt payments. A higher DTI can be a sign that you might struggle to make a mortgage payment. A lower DTI tells lenders you have more available income to put toward a mortgage payment. Generally, lenders prefer a DTI of 35% or less. If your income is already obligated to debt such as car payments, student loans, credit cards, personal loans, etc. you may m=nit have enough money at the end of the month to pay a mortgage.

Down payment amount — A down payment reduces the amount you have to borrow — meaning less of the lender’s money is at risk. Generally, lenders (and many sellers) look favorably on a higher down payment amount. If you put down less than 20% of the home’s purchase price, many lenders will require you to pay for private mortgage insurance, which protects the lender (not you) if you fail to repay the mortgage. With a good Credit Score and low DTI you may qualify for a lower down payment, many FHA and Conventional loans require 3.5% down payment which is significantly lower than 20%

Repayment term — Historically, the longer a loan’s repayment period, the higher the interest rate. The lowest rates typically come with 10- or 15-year terms, while 30-year terms usually have the highest interest rates. If you can swing the larger monthly payment that comes with a shorter term, you could snag a lower interest rate and significant interest savings over the life of the loan.

Mortgage interest rates have been trending upward, as experts predicted they would in 2022. This may cause a lot of headaches for homebuyers, especially when housing inventory is still low compared towhere it has been in the past.