October 23, 2018

How to Determine the Best Mortgage for You

How to Determine the Best Mortgage for You

There are a number of factors that go into determining mortgage rates, like loan term, home location, down payment and the type of mortgage itself. Credit scores, however, have arguably the biggest hand in deciding mortgage rates, because they directly impact your interest rates and therefore influence every other component in the creation of your rates. Here, I hope to better guide and quickly explain the importance of credit scores and mortgage rates for new homebuyers in our surrounding Gainesville area.

Credit scores measure creditworthiness on a scale of 350 to 850 and are created using an algorithm from your borrowing history. This includes how good you are at paying any sort of short-term or long-term loan, like credit card bills, car loans and student loans. It makes it easier for lenders to decide whether or not you are a reliable borrower by outlining your payment history, length of credit, current and new credit, and the types of credit under your name. Commonly referred as a FICO score, it can come into play while applying to home and auto loans when settling into a new area.

In general, the better credit scores land lower interest rates, and vice versa. It is important to increase the number of your score as much as possible prior to seeking a mortgage, since simply raising your average by 25 points could lead to huge savings in the long run. From experience, I have seen that prospective homebuyers with FICO scores that range between 625 to 650 land a median interest rate of 3.88%; those whose ranges between 650 to 725 saw a rate of 3.75%; those with ranges between 725 and 750+ saw a rate of 3.62%.

Currently interest-rate averages in Gainesville hover around 4.875% on a 30-year fixed-loan mortgage rates and 4.375% on a 15-year fixed loan (shorter loans get lower rates because the risk of loan default is lower). This compares to the general American market, whose median sales price fluctuates at $178,250 and the price per square feet sits at $119. Of course, these numbers are not set in stone; they also vary depending on the purchase price of the house and the buyer’s down payment. This is why I advise prospective homebuyers to really look at their spectrum of choices and realistic ability to pay off a mortgage. And it’s even more important to use a reputable local lender.

Overall, being an informed buyer and being complete in your research can save you time and trouble in the future. Mortgages are a long-term commitment and should not be treated lightly. If your credit score yields an undesirable interest rate, I advise that you sort out your credit score first, before jumping into signing a long-term contract.

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