These two factors have the biggest influence on the cost of your mortgage.
There are two things can change the cost of your mortgage when buying or refinance a home more than you think. Here’s what you need to know when trying to secure the best possible mortgage for your family.
The two factors that will make your mortgage more expensive or more affordable is your credit score and your loan to value. If your credit score is excellent and your loan to value is over 75 percent you will be paying more than you would if your loan to value was lower. Credit and equity are the two biggest factors that can significantly drive up the cost of your mortgage.
If you plan to buy a home, you will get a better interest-rate if you put down 20% with excellent credit than you will if you put down anything less than 20%. Lenders have what are called loan level pricing adjustments which affect your mortgage costs.
For example, lets you have excellent credit say 760+ and your loan to value is 95% and you’re looking at a loan amount at $400,000. In this scenario, it would be realistic to think you could scoop up an interest-rate around 4.25 at no points. If on the other hand, you have the additional cash and you can put down say 20% or even 15% for that matter it would be reasonable to think that you could scoop up a 4% interest rate based on putting down an extra 15 to 20%. Even if the credit score is the same the interest rate would be better in that example. Then you would have the case to make is it more beneficial to save quarter in rate in exchange for giving up the cash.
Here is when things get expensive from a mortgage standpoint. If your credit score is anything at 700 or less that’s when lenders will start to ding you from an interest rate and cost perspective. Here are the following tiers and how they break down
680 to 699
660 to 679
620 to 640
If your credit score happens to fall into one of these lower tiers you want to have at least 30% equity if you want to be able to procure the absolute possible lowest rate in the market without paying a bunch of discount points.
Things to do to keep your financial house in order. Borrow less money or put more money and pay your bills on time and pay your credit cards off in full each month. Do this for 6- 8 months and you can see a noticeable rise in your credit score.
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