If you are looking for the best rate on your next mortgage or investment property, there are several factors that you need to be aware of before you start shopping for your loan. While interest rates are at historic lows, it doesn’t mean that you will be eligible for the lowest possible rate. What should you be aware of if you don’t want to pay more in interest than you have to?
Your Credit Plays a Large Role
To get a good rate on your next mortgage, you will need to have a credit score of at least 700. Ideally, you will have a credit score of 740 or higher to get a rate below 5 percent. This is because a credit score of 740 is considered elite and is the sign of a responsible borrower. Those who don’t have a long credit history or don’t have much of a credit mix, it may be difficult or impossible to have a credit score above 740.
The Length of Your Loan Plays a Role As Well
Borrowers who are seeking a 30 year mortgage are going to pay a higher interest rate than those who are planning on paying their mortgage over a 10 or 15 year period. Lenders charge a higher rate for long-term loans because there is a greater chance that a borrower could default on the loan over a period of 30 years as opposed to 10 or 15 years. However, it should be noted that opting for a mortgage loan term of 30 years reduces your monthly payment.
The Type of Loan that You Choose Matters
A conventional mortgage that comes with a fixed-rate are typically the only loans that give you the lowest interest rate on the market. If you opt for a FHA loan or a VA loan, you are most likely going to pay a higher interest rate because those loans are designed for those who don’t have great credit or don’t have 20 percent of the purchase price to put down. Therefore, you should expect to be charged a higher interest rate to compensate for the extra risk that the lender is taking. You also have to consider the cost of mortgage insurance if you opt for a FHA loan. This extra cost could offset any savings that you would see from a lower interest rate.
If you’re in the area and you want the best mortgage rates in Houston, you should talk to a mortgage broker in the area to find out the best financing options available to you.
David Allred is the author and creator of CFW. David has been teaching entrepreneur minded people how to earn a full time income working from the comfort of home for nearly a decade.
Think about it. Never miss your kids’ events, set your own schedule, choose your own income and enjoy a lifestyle and income which most people only drool over!
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