Mortgage Rates Dropping? What You Need to Know
Rates fell low enough during this time to hit just under 6.30% for 30-year fixed-rate mortgages. Whether you seek an FHA mortgage, a conventional loan, or other options, conditions seem right for a housing market recovery. At least for now.
If this decline continues, we could see mortgage loan rates flirting with the 5% range, but whether the numbers actually reach the sub-6% range remains to be seen.
But falling rates don’t mean much to the borrower who isn’t ready to apply, get approved, make a down payment, etc. Until you are ready to make the jump from renter to homeowner, mortgage loan interest rates are purely hypothetical. Do you know why?
Mortgage Loan Rates and Credit Scores
That’s the totally obvious part of the advice you’ll read online about home loans and buying real estate. What may not be so obvious, especially to a first-time home buyer, is the fact that your mortgage loan interest rate is determined by multiple factors--not just the advertised going rate.
Your FICO scores will influence the lender’s decision to offer you an interest rate. If your credit is good, your rate offer may be more competitive than those a borrower with lower FICO scores might get. So “today’s interest rate” is NOT the entire story.
That rate, coupled with the information in your credit report, will inform the lender’s decision to offer you a specific rate that may or may not match the one advertised on the lender’s official site.
Interest Rates Change Frequently
Another reason not to get too excited about the advertised going interest rate? It won’t mean anything to be offered a rate if you don’t accept it and enter into an interest rate lock commitment with the lender.
A rate lock is a service (often with a fee) that commits you and the lender to a specific, unchanging rate for a specific time. The idea is to protect the borrower from changes in the rate along the way.
How Interest Rate Locks Work
With a rate lock commitment, you and the lender agree that the rate will not change. Without this commitment, rates may move up and down between now and closing day, and you won’t have the protection of the rate lock to prevent rising rates from changing the costs of the loan.
A mortgage rate lock is possible once you have committed to buying a home and have been approved for the loan. A rate lock is not possible when you are in the window shopping phase of your search for a home. Your lender won’t agree to lock in an interest rate without a commitment to buy.
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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