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April
15

What Determines Your Interest Rate

Home Interest Rate

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:

Economic Trends (Supply and Demand)

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.

Your Credit History and Amount of Debt  

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.   

Price, Age, and Location of the Property

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.   

August
28

How to Qualify for a Home Loan

How to Qualify for Home Loan

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.

Follow These Steps to Simplify the Process of Obtaining a Home Loan

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.

  • Credit Score and Credit Report

    Your credit score plays a major role in your ability to qualify for a loan, as well as the terms that will be available to you. When it comes to credit score, higher is better, and the best way to build a high score is by paying back debts on time consistently. This can include credit card debt, auto loans, and most other types of loans.

    Your credit report is also a factor, and it's evaluated similar to your credit score. So if you have large, outstanding debts or judgments that have not been paid, there is a good chance you'll need to "clean up" those issues before qualifying for a mortgage.

  • Down Payment

    The down payment you're able to make is another big factor in qualifying for a loan, and the typical minimum down payment is 3.5 percent of the home's value for an FHA loan, and 5 to 10 percent of the home's value for a conventional mortgage. An FHA loan is an option for first-time home-buyers, and is also more forgiving when it comes to past credit issues. There is flexibility to make a larger down payment as well, if the finances work for you. Just remember to leave extra room in your budget for closing, moving, and other costs.

  • Debt-to-Income Ratio

    Put simply, the lender wants to know that you have a steady source of income, and that your income is enough to consistently make the necessary payments on your mortgage. This is one part of the process that often requires significant documentation, so it's a good idea to gather recent pay-stubs, your W-2 or 1099, federal tax returns, as well as comprehensive lists of your assets and debts. Combined, these documents help provide a clear, detailed picture of your finances for the lender.

  • Don't Be Afraid to Ask Questions

    Obtaining a mortgage is a complex process, especially when you're doing it for the first time. So don't be afraid to ask for help from trusted sources! Your real estate agent can tell you a ton about what it takes to qualify, and maybe even recommend lenders who could be a good fit for your needs.

    Shopping around for a loan is also encouraged, both for getting the most favorable terms and understanding exactly what your options will be. It will also help you identify the lender you'd most like to work with, which can go a long way toward simplifying the process.

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.

Contact Old Dominion Realty

August
23

Why Real Estate Agents Ask if You're Pre-approved

Pre-approval Process
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:

  • Identifying Serious Home-Buyers
    Buying a house is a time-intensive process for you and your real estate agent. Most experienced agents ask about pre-approval because getting pre-approved shows that you are serious buyer. This is also a question your agent will ask of any buyer who wants to work with them. It's nothing personal, but agents simply want to make sure they are investing their limited time wisely.

  • Negotiate from a Position of Strength
    Obtaining pre-approval for a mortgage allows you to negotiate from a strong position. It gives you a good idea of what you will be able to spend on your home, and shows the seller that you'll be ready to hold up your end of the bargain once your offer is accepted. It's one thing to say you have the money, and another to be able to prove it.

  • Satisfying Sellers
    It's not just your real estate agent who might be interested in whether you're pre-approved. There's a pretty good chance that the seller will be, too! Pre-approval also shows the seller that you're serious about making a purchase, have done your homework, and are ready to get into the details of the negotiation.

  • A Simple Safety Step
    In some cases, showing a house alone or meeting with a new client can be a safety risk for real estate agents. Some agents have been the victims of crimes when meeting with someone who claims to be an interested customer. The agent doesn't know who you are, where you came from, or what your goals are; pre-approval shows them that you are a serious shopper. That provides peace of mind for your real estate agent, and makes it easier for both sides to take the next step.

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.

Contact Old Dominion Realty

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