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Check The Factors That Affect Mortgage Interest Rate!

Sep 13, 2018

Buying a property is an expensive affair. It may take years before you can consider your first home, but fortunately, there are enough financing options for most income groups. From basic traditional mortgages to USDA loans, you can select between options. What matters is the interest rate. You have to try and negotiate on the interest rate, especially with regards to conventional mortgages.

In this post, we take a look at the aspects that affect your mortgage rate.

  • Credit score. Like most people, chances are high that you will end up with an adjustable-rate mortgage, which means that your interest rate will change at some point. Most lenders are interested in knowing your credit score, because it helps them in deciding if you can handle the payments for the extended term, which is again between 15 and 30 years. There are ways to improve your credit score, so fret not.

  • Your income. Having a steady and dependable source of income for at least two years is extremely necessary for getting a loan. Of course, they will also check your salary and if there is enough for your growth to keep paying the installments. In cases of self-employed, the norms are even harder. Before you apply, check what you can afford. On many sites, you will find a mortgage calculator made simple, which can be handy.
  • Debt-to-Income Ratio. This basically concerns the debt payments you make per month. The bank will want to know the back-end ratio, which refers to all the debt payments in a month, and it shouldn’t be more than 36% of your income in the ideal case. Your current mortgage payment determines the front-end ratio, which again shouldn’t be more than 28%. Ratios can go higher, depending on other factors.
  • Down payment. This is basically the upfront cost you pay from your pocket, and traditionally, that’s around 20% of the property value. The more you pay, the lesser debt you will have, which means that the lender will have lower risks, and that may translate into a lower mortgage rate.

Finally, cash reserves do matter, as well. Mortgage lenders do exercise some control on the rates, but there is enough scope to negotiate things. Understand if the property is worth all the effort and money spent before anything else. It is possible to pay off the old mortgage with a new one, which can be beneficial in some cases. Check online for mortgage calculators now!

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