When any of us are shopping for a mortgage in the Houston area, we look at the interest rate first. But what items affect the interest rate. The answer may surprise you. Here are the different factors that will determine your interest rate:
- What type of loan are you getting? – The 5 main mortgage options include FHA, VA, Conventional, USDA and Jumbo mortgages. And actually every one of them offers a different rate. So when deciding which type of loan you want, you will want to take into account the interest rate.
- Credit Score – Of course this one seems like a no brainer, but it is not as simple as a bad credit score would get you a bad interest rate and vice versa. On conventional loans the rate can differ if you have a credit score of 680 vs 740. And credit score of 740 and over would get you the best rate possible. Under 740 the rates can differ depending on your credit score and it goes by 20 credit points. So the interest rate could be different at 740,720, 700, 680 and so on. On FHA and VA loans they allow more leniency when it comes to your credit score and the interest rate.
- Property type – If you are buying a regular single family home then you rate would not be affected. But if you are buying another type of property your rate could be higher. These different property types that could cause you to have a higher rate are: a Condo, Duplex, 3-4 unit property and manufactured home.
- Loan to Value – This is also called your LTV. The loan to value is the loan amount divided by the sales price or appraisal value(if a refinance). With that being said, your down payment could affect your interest rate on a conventional loan. This can affect your interest rate if you are getting a conventional loan. On a FHA or VA mortgage this does not affect your interest rate.
- Length of your Loan – This is a major factor. If you are getting a 15yr mortgage the rate will always be lower than a 30yr mortgage. But keep in mind since the loan term is shorter, your monthly payment will be higher vs a 30yr mortgage.
As you can tell when shopping for a mortgage interest rate in Houston Texas, many factors come into play. To find out what your mortgage rate would be, call us today!