a home loan is probably one of the most stressful parts
of buying a new home. To get the best loan possible, itís
important to know what factors affect interest rates ó
a fraction of an interest rate can translate into
thousands of dollars less or more over the life of a
rates increase by 1 percent, a buyer loses 10 percent in
purchasing power," said Michael Deery, a mortgage
specialist and president of Citywide Financial Corp.
Since December, interest rates have gone up
three-quarters of a percent and are now in the 4.375 to
4.5 percent range for a conventional loan.
actual numbers, Deery said, that means a buyer who could
afford a $600,000 home in December can only afford a
$555,000 home today.
why itís more important than ever to get the lowest
interest rates possible.
single biggest factor a homebuyer can control in getting
lower interest rates is their personal credit score. A
high credit score generally leads to a lower interest
rate. For a conventional loan, that score should be 740
or higher. (A good credit score is above 700 and an
excellent credit score is above 800.)
rates should be checked once a year. If youíre
planning on buying a home, a credit rate check should be
one of the first things you do, so you will have time to
fix any errors or improve your score, which may take
some time. Paying down credit cards, if you have a high
balance, is a good way to get started, Deery said.
amount of a down payment will also affect interest
rates: The higher the down payment, the lower the
interest rate. Loans with a standard 20 percent down
payment will have a lower interest rate, but that is
often not an option in San Diegoís pricey home market,
especially for first-time homebuyers. Mortgage plans
that require borrowers to pay only 3 to 5 percent down
are abundant, but those loans will then require private
mortgage insurance (PMI). The insurance is either added
to the cost of the monthly loan payment or absorbed in
higher interest rates.
Diegoís steep home prices also result in higher
interest rates because of the amount of the loan. Higher
loans come with higher interest rates. The standard ó
or conforming ó national loan limit, set by the
Federal Housing Finance Agency, is $453,100. High-cost
areas, such as San Diego, have a limit of $649,750 for a
single-family home. But that high-balance loan limit
comes with higher interest rates, usually by an eighth
or a quarter of a percent, Deery said.
Mae-backed loans are also higher for condos than for
single-family homes if the down payment is less than 25
percent, he said.
consider the length of a loan. Shorter terms have lower
interest rates, but the monthly payment will be higher
because youíll have less time to pay off the loan.
youíre planning on staying in your home only for a
short time, you might want to look at adjustable-rate
loans instead of fixed-rate loans. Fixed-rate loans donít
change over the life of the loan. Adjustable rates often
start out fixed for a few years and then fluctuate with
the market. The initial interest rate is sometimes lower
than in a fixed rate, so if youíre planning on selling
your home after a few years, an adjustable rate could
save you money.
those who plan on staying in their home for a longer
period, fixed rates are a safer option. "Weíre
moving into a higher interest market in the next few
years," Deery said.