Are you looking to buy a new home this year? While you may have a budget set aside, a big factor in your ability to purchase a home will be the mortgage rate you will get.
As you start shopping around for the best mortgage rate, it can get confusing as to what you really need to qualify for the lowest mortgage rate possible. Let us walk you through some of the factors that may impact your mortgage APR.
What is APR?
APR, or Annual Percentage Rate, represents a broader look at the cost of your home loan. It goes beyond the interest rate and takes into consideration the points, processing fees, and other charges that comprise the mortgage loan. Your interest rate is the actual interest that you will pay each year on the loan, expressed as a percentage. With the additional fees factored in, your APR will normally be higher than your interest rate.
APR is a great tool that will give you a better representation of the cost of your home loan and allow you to more accurately compare mortgage rates against one another.
Your financial history can greatly impact both your interest rate and APR. Many lenders will look at your FICO score, debt-to-income ratio, and monetary assets prior to prequalifying you for your new mortgage.
A Good FICO Score
Your FICO score can have a direct impact on your mortgage qualification and the interest rate you receive. This score is created by reviewing five aspects of your credit including your payment history, current amounts owed, length of credit history, mix of credit accounts, and new credit accounts opened.
So what constitutes a “good” FICO score? FICO scores can range from 300 to 850. A FICO score of 700 and above is considered good by most lenders.
Another aspect lenders look at when compiling your rate is your debt-to-income (DTI) ratio. DTI ratio is also something that you should take into account before you go house hunting so that you can establish a realistic budget for your monthly mortgage payment.
To determine your DTI, total your minimum monthly debt by adding up your minimum monthly credit card payment, car payment, and any additional debts such as student loans. Once you have your total minimum monthly debt, divide that by your gross monthly income. Lenders are usually looking for a DTI lower than 43 percent.
Knowing where you stand financially can help you feel more confident as you apply for mortgages. You can get an idea of what your monthly mortgage payment could be by testing multiple interest rates using the Bank of Internet USA Mortgage Loan Calculator.
Explore Your Mortgage Options
If you are considering applying for a mortgage, we invite you to explore the mortgage options available from Bank of Internet USA. Get an instant mortgage rate quote or talk to one of our friendly, experienced mortgage specialists today by calling us at 1-888-546-2634.
"Locking in a Low Mortgage Rate"
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