After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
How Mortgage Rates Are Determined
If you are shopping for a mortgage to buy a home, or looking to refinance the mortgage you currently have, how can you estimate how much you will be paying in mortgage rates? After all, it is what determines how much you will be paying each month.
A number of factors determine how your mortgage rates are calculated, some of which may be out of your control.
Since your credit score is a measure of your ability and willingness to pay back your home loan on time, it has a big effect on your mortgage rate. When reviewing your application, lenders will look at your credit score in combination with your debt-to-income ratio and down payment to determine your mortgage rate. The better your score, the better your rate will be.
Lenders will also look at your employment history over the past few years to determine your financial stability and if you have the means to pay back your loan. If you are self-employed or do not have steady employment, it may be more difficult to get a lower mortgage rate.
How much can you put down in your down payment? If it is not very much, say less than 20% of the home’s value, you may find yourself with higher mortgage rates. A larger down payment typically means a reduced payment, but this may vary from lender to lender so be sure to do your research.
Your debt-to-income ratio, combined with your credit score, down payment, and employment history, is another big determining factor of your mortgage rates. This helps lenders figure out how much you can afford to pay each month without having to scrape by. Remember, lenders want you to be able to pay your loan back!
You can lower your mortgage rate by “buying it down” in the form of paying points. You are paying a chunk of your interest up front, which can lower your rates. This method isn’t for everyone, so if you can barely afford your down payment or closing costs, skip paying points altogether.
Last, but not least, the housing market can have a big effect on your mortgage rates. Buyer confidence, unemployment, inflation, and stock values are some of the reasons why mortgage rates can fluctuate from month to month and even week to week. So keeping an eye on the current market can help you and your lender determine when the best time to buy or refinance may be.
It is important to remember that this factor is largely out of you and your lender’s control, so try not to stress too much.
What Do 2017 Mortgage Rates Look Like?
In 2017, mortgage rates are projected to be lower, around or below 4% for some borrowers. So if you are looking for a home or wanting to refinance, you may want to consider doing it sooner rather than later. Remember that this number is an estimate and not set in stone, and lower mortgage rates aren’t always the best since there could be hidden fees.
Always shop around before committing and ask each lender about their rates and fees.