If you’re planning to purchase a home with a mortgage, the amount you spend on that property will be influenced by the cost of your mortgage.
How do you know what you’ll pay in interest for that mortgage?
The rates have been complex lately; after plunging to record lows a couple of years ago, they began making the climb back up and now they’re higher than they’ve been in a while.
In the middle of January 2023, the rate on a 30-year mortgage averaged 6.43 percent (according to Bankrate).
Here are five things that help determine your mortgage rate in Winston-Salem.
1. Economic Trends and Inflation
The Federal Reserve does not set mortgage rates, but they do set interest rates for the central bank and those influence whether mortgage rates rise or fall. The current period sees them rising in order to get control of the inflation that has risen in the U.S. economy.
The confidence that consumers have in the economy and its performance will also impact whether mortgage rates are on the higher or lower end. Lenders will adjust rates to make up for any losses when inflation is high and consumers hesitate to spend.
The economic conditions and inflationary shifts are things you have no control over as a homebuyer. Some of the other things impacting your mortgage rate can be controlled or at least influenced by you, however.
2. Winston-Salem Homebuyers and Credit Scores
The better your credit, the better your mortgage rate.
Most lenders group credit scores together in brackets, and as you would expect; the top brackets get the best mortgage rates. If you’re aiming for that top bracket, you’ll need a FICO credit score that lands between 740 and 760 or higher. The next bracket is somewhere around 700 to 720. The brackets form as the score goes down, ending at around a 620 credit score (obtaining a mortgage with a credit score below that will provide difficulty).
You can expect the interest rate on your mortgage to increase by about 20 points for every bracket you go down.
3. Your Income and Debt
Another factor in the mortgage rate game that you can control is your income and your debt. Lenders will calculate your debt-to-income ratio, hoping to see that your total monthly debts, including your estimated new mortgage payment, are to equal or below 43 percent of your income. The lower your debt-to-income ratio, the better your chance for a home loan with a lower interest rate.
4. Down Payments and Loan Life
The larger your down payment, the more likely you are to get a better mortgage rate. Smaller down payments translate to riskier loans for lenders. When you put down more, you’re less likely to stop paying because you already have some skin in the game. Buying private mortgage insurance (PMI) can also put your lender at ease and potentially reduce your mortgage rate.
If you can do a 15-year mortgage instead of a 30-year mortgage, you’re likely to get a better rate as well because the loan will be paid off faster, saving you a lot of money.
5. Origination Costs and Fees
Here’s another factor in your mortgage rate that’s outside your control. The amount you pay in origination costs. The cost of creating mortgages covers running a credit check, underwriting, a title search, and dozens of other steps that lenders must take to process a mortgage. You can expect to pay thousands of dollars, which adds to the cost of your mortgage.
If you need Winston-Salem real estate services of any kind, please contact us at Capstone Realty Consultants. We’d love to be your resource while buying a home in Winston-Salem.