Before you start shopping for the right house, you have to shop for something else: the right mortgage. Pre-approval is practically mandatory if you want sellers to consider your offers, and comparing different rates and terms is just as important as comparing different properties. Because your rate will determine the size of your monthly payments for decades to come, you want to choose a loan with as little interest as possible. But do you know how lenders come up with this important number in the first place?
Many different factors and figures affect your interest rate, and you can't predict or control all of them. Our real estate agents want you to understand your fluctuating options when you know more about the math behind them. Here are some of the things banks and other lenders consider as they calculate interest rates for home loans:
Interest rates get higher when lenders take on additional risks, and some risks have nothing to do you with you. For example, are you buying a home in an unstable financial climate? Housing markets suffer, and layoffs are more likely during economic slumps, so lenders must take local and national trends into account as they consider their risks. That's why lenders usually follow the Federal Reserve's lead, lowering or raising interest rates as the federal rate changes.
Lenders also depend on a secondary market of bundled mortgage bonds, so their rates are influenced by the investors who will purchase your loan from them. These investors want high yields on the investments they make, and the laws of supply and demand apply to mortgage bonds too. Your lender wants a loan that will be profitable enough to attract investors, so they must take investors' risks into account.
How likely are you to make every mortgage payment on time, in full? Lenders only charge their prime rates (their lowest current rates) to borrowers with fantastic track records. That means your credit score and credit history will play a huge role in the rate you receive. Late or missed payments will make your rate soar, while a history of on-time payments will make lenders feel better about their risks. If you have an established relationship with your lender, that may boost your reliability too.
Of course, you also need the funds to make those payments. Debt-to-income ratio is just as important as your salary because it determines your available income every month. If you have a lot of outstanding debt, you're a bigger risk to lenders, even if your credit score is stellar.
Already have an interest rate from a bank? Until you make an offer on a specific home, that number may not matter much. Lenders calculate a new rate for every loan, and yours will be affected by the value of the home you want to buy. For example, lenders look up historical data of similar houses in the area, considering the market value and recent selling trends. They may even offer different products for different types of structures or neighborhoods.
Of course, the price of your house plays a big role too. While your down payment and closing costs will also affect the size of the loan, you should usually expect higher interest rates for homes with higher prices.
Are you ready to buy a house? At Old Dominion Realty, our real estate agents are happy to make this process as easy (and easy to understand) as possible, from mortgage pre-approval to closing day walkthroughs. Contact us to find an experienced agent near you.
Obtaining approval for a home loan is one of the most important things that you'll do in the process of buying a house – and for many people it's one of the most intimidating. Even if your financial picture is in great shape for obtaining a mortgage, it's not always easy to know where to start, what steps to take, and who you can turn to for advice. Here is a review of what it takes to qualify for a mortgage.
The most important thing to remember about qualifying for a mortgage is that it really pays to be prepared. Understanding the basics of how the process works ultimately saves time, makes life easier, and leads to better results.
Searching for the right home, and the right real estate team to help accomplish your home-ownership goals? Contact Old Dominion Realty to buy and sell homes in Virginia and West Virginia real estate markets.
If you've been house hunting for any amount of time, there's a good chance you're all too familiar with the process. You find a few homes, meet the agents, and shake some hands. The conversation moves on to the type of homes you like, the type of neighborhood you're looking for, and maybe even making preliminary plans to visit an open house.
But before things get too far, you get the question that every experienced real estate agent asks of new clients: Are you pre-approved for a mortgage?
For some home buyers, the question comes as a shock. Aren't you supposed to be the one evaluating which real estate agent you want to work with? As it turns out, there are some very good reasons that your real estate agent asks about pre-approval.
The biggest thing to remember about mortgage pre-approval is that it has the potential to make life much easier for both you and your agent when you're buying a house. It's also good to remember that there's a big difference between assuming that you can attain a mortgage, and actually doing it – even if your credit score and finances are in great shape. With that in mind, here's why your real estate agent asks whether you're pre-approved:
Obtaining pre-approval is just one step on the path to buying a house. Contact Old Dominion Realty to buy and sell homes throughout the Eastern West Virginia and Central Virginia's Shenandoah Valley real estate areas.