What Factors Determine Home Loan Rates?

Buying a home is an exciting milestone in anyone's life. As a homeowner, you are free to decorate your home as you wish and are no longer tied to any rental obligations. However, when it comes to financing a home, there are many factors at play that can affect the interest rate you obtain on a loan. While there are many determinants, here are three factors that can impact home loan rates.

1. Loan Program

There are numerous mortgage loan programs such as Conventional, FHA, VA, and USDA loans. Depending on investor's appetites for specific loans, rates can rise or fall throughout the year. There are times when Conventional interest rates are more attractive than FHA rates, but that scenario is flipped at other times. Things like the stock market, consumer confidence, housing starts, and even unforeseen events like the pandemic all play an integral role in the interest rates affecting homebuyers and refinancers.

2. Property Type and Occupancy

The type of property you intend to purchase can have an impact on interest rates. For example, the rates for mobile homes or condos may be higher than for single family, detached homes. Whether you plan to live in the home as your primary residence or not can also affect your rate. The rates for rental properties can be significantly higher than rates for primary residences since they are seen as a higher risk class. Second homes (or vacation homes) typically have the same rates as for primary residences, but require a higher down payment.

3. Credit Scores

Credit scores can also affect the price you pay for loan rates. Lenders pay close attention to your credit history and your credit scores are a good indication of whether you will repay your loan or not. If they believe, based on your credit history, that you can pay your loans, they will be able to obtain lower loan rates for you. If you feel as if your credit score is low, there are several ways to improve this. Consult with your lender to find ways to boost your scores before locking in an interest rate.

Lock in at a Low Rate

Although these are just a few factors, there are other variables that can affect loan rates. One solution that will limit uncertainty is to lock your rates while they are low. Once you have a contract for a new home or decide to refinance your existing loan, speak with your lender about locking right away.

Right now, we are experiencing historically low rates. If you are looking to buy a home or refinance your existing one, rely on the experienced professionals at Butler Mortgage. With over 25 years helping buyers finance homes, we can help you find the right loan solution for your needs. To learn more, call us today at 407-931-3800 or fill out our free consultation form online.