Mortgage rates are one of the biggest concerns for today’s homebuyers. 3 things you can control about your mortgage rate explains how credit, finances, and loan choices can impact your rate.
While you can’t control overall interest rates, you can control some of the factors that influence the rate you may be offered.
That matters because even a small difference in your mortgage rate can affect your monthly payment and total borrowing cost over time.
Here are three areas to watch before you buy.
1. Your Credit Score
Your credit score is one of the factors lenders consider when determining your mortgage terms.
Generally, borrowers with higher credit scores may qualify for more favorable rates. The Consumer Financial Protection Bureau recommends checking your credit reports for errors and understanding where your credit stands before applying for a mortgage.
If you’re planning to buy soon, this is not the time to ignore your credit.
Pay your bills on time, avoid taking on unnecessary new debt, and check your credit reports for inaccuracies. Even small improvements can be worth discussing with a lender before you start seriously shopping.
2. Your Loan Type and Term
The mortgage you choose can also affect your rate and overall borrowing costs.
A 15-year mortgage, for example, generally comes with a lower interest rate than a 30-year mortgage, but the monthly payment is typically higher. Government-backed loans such as FHA and VA loans can also have different pricing and qualification requirements than conventional mortgages.
The key is not to choose whichever loan advertises the lowest rate.
Look at the entire loan.
What’s the monthly payment? How much will you pay in interest? Are there mortgage insurance costs? What are the upfront fees?
A lower rate isn’t necessarily the better deal if costs outweigh the savings.
3. The Home You Choose Can Affect Your Options
The home itself can also play a role in the financing options available to you.
Some builders, for example, may offer mortgage-rate buydowns or other incentives through affiliated lenders. A temporary buydown can reduce the interest rate for an initial period, while other programs may involve different upfront costs or long-term terms.
These offers can sound appealing, but it’s important to look beyond the headline rate.
Ask what the rate will be after the introductory period, what the upfront costs are, and what the APR and total loan costs look like.
The CFPB recommends comparing Loan Estimates because the interest rate isn’t the only cost of a mortgage. Points, fees, mortgage insurance, and other charges can all affect what you actually pay.
You Can Also Shop Your Lender
One more factor is where you get your mortgage.
You don’t necessarily have to accept the first offer you receive.
The CFPB recommends comparing multiple lenders and getting at least three loan offers when shopping for a mortgage. Different lenders can offer different rates, fees, and loan products to borrowers with similar financial profiles.
That’s why getting pre-approved isn’t just about finding out how much you can borrow.
It’s also an opportunity to understand what financing could actually look like for you.
You Can’t Control the Market. You Can Control Your Preparation.
No buyer can decide what mortgage rates will be next month.
But you can control how prepared you are when you apply.
Know your credit. Understand your loan options. Compare lenders. Look at the complete cost of the mortgage rather than focusing only on the rate advertised in big numbers.
And when you’re ready to shop for a home, make sure you’re comparing the monthly payment and total cost, not just the purchase price.
Because the best mortgage isn’t necessarily the one with the lowest rate.
It’s the one that makes sense for your financial situation and the home you’re buying.
