Other factors that affect the interest rates include the loan program and type, downpayment, credit score, home price, etc. You can make some changes to some factors to reduce the interest rates; however, other factors are determined by external conditions.
You are in the right place if you want help on how to purchase a home in Citrus County, Florida. We've made this article to help inform you about changes you could make to reduce interest rates and how you could go about negotiating a better deal.
Keep reading and discover why you should buy your home in Citrus County, Florida and how you would go about it.
Are you a first-time homebuyer? Learn more about the available FHA home loan options in Citrus County, Florida.
Overview of how lenders determine mortgage interest rates
Several factors determine your mortgage interest rates, as shown above. Some of these factors are in your control, including your credit score, income, debt-to-income ratio, etc. Often, lenders look at some, or a combination of the factors mentioned to determine your eligibility and whether you qualify.
Better qualifying factors increase the chances of a lower interest rate. However, all this begins with the mortgage rates today. The current market rates affect mortgage interest rates, and you may be wondering how. For starters, the economy affects mortgage interest rates.
For instance, mortgage rates can rise if the economy is good since borrowers can afford to make monthly payments. The rates will fall if the economy does poorly since borrowers will have difficulty paying back the loans. However, this can also be determined by investors, i.e., they may demand lenders set a higher interest rate at any time.
Investors provide the money lent to borrowers. As such, their needs often come above everyone else's. Often, if lenders demand more returns for their investment, lenders will be forced to increase the interest rates, or investors will take their money elsewhere. However, this doesn't mean lenders would steadily increase the interest rates.
Lenders often have to strike the perfect balance, ensuring they attract borrowers and generate enough profit for the investors. Shortchanged borrowers often have low credit scores and high debt-to-income ratios since lenders view them as groups that provide a low return on investment, forcing lenders to impose a high mortgage interest rate.
Factors affecting mortgage rates
We can group the factors that affect mortgage rates as personal and external.
External factors affecting mortgage rates include the bond market, Federal Reserve, Constant Maturity Treasury, Secured Overnight Finance Rate, Inflation, and the Economy. The factors includes:
The Federal Reserve
While most people think the Federal Reserve dictates mortgage rates, the truth is it doesn't. The Federal Reserve influences mortgage rates. It controls short-term interest rates by decreasing or increasing them based on the economy. Mortgage rates aren't tied to the economy; however, changes in the Fed rate often affect mortgages' prime rate.
The federal reserve's control of short-term interest rates is designed to keep the money supply in check. For instance, the Federal Reserve will lower rates when the economy struggles.
The Federal Reserve doesn't influence the consumer's rates; instead, it influences the rates at which banks borrow money from the Fed to lend to consumers.
The Bond Market
Mortgage rates are reputed as tied to the US 10-year treasury note; however, they are tied to the bond market. Mortgage bonds or mortgage-backed securities are bundles of mortgages available in the bond market. The bonds influence mortgage rates depending on the demand in the market.
Usually, there is a huge demand for mortgage bonds if the stock market does poorly. This causes mortgage rates to rise, and the rate decreases when demand for mortgage bonds decreases.
The secured overnight finance rate
The SOFR or secured overnight finance rate is an interest rate set depending on banks' overnight borrowing costs. Lenders use SOFR to determine specific mortgages' base interest rates.
The SOFR has become quite popular that it's replaced the LIBOR or London Interbank Offer Rate. SOFR phased out the LIBOR after 2021.
Constant maturity treasury rate
The CMT rate, or Constant Maturity Treasury rate, is calculated by averaging yields from varying types of US treasury securities and maturing periods. The result is used to adjust to varying periods.
Some lenders use the rate to determine interest for ARMs (adjustable-rate mortgages). You should expect interest rates for loans tied to the CMT rate to rise if the rate increases.
As mentioned above, the current state of the economy dictates mortgage rates. For instance, if the economy does well, the mortgage rate will increase since most people have jobs, and there is an increased spending rate.
An economy that's not doing so well triggers decreased mortgage rates since unemployment levels are high and the spending is low.
Increased inflation triggers high mortgage rates to keep up with the dollar's value. Decreased inflation rates lead to lower mortgage rates. Mortgage rates often fluctuate slightly or stay the same during periods of low inflation. Mortgage rates today keep increasing because of the increasing inflation rates.
Personal factors affecting mortgage rates favor individuals differently. For instance, lenders will provide individuals with a good credit score with low-interest rates since they are more likely to repay the loan. The factors include:
Lenders see individuals with a high credit score as low-risk borrowers, i.e., they don't overextend their credit and tend to pay their bills on time. Thus, lenders will see such individuals as responsible borrowers and provide you with mortgages with a better interest rate.
Lenders must adjust to individuals with a low credit score by providing loans at a high-interest rate since they are seen as high-risk borrowers. Lenders impose a high-interest rate to help them recoup their principal amount as soon as possible. You could reduce your interest rates by improving your credit score.
Your loan program of choice determines what credit score you need for approval. Conventional loans that aren't government-backed require high credit scores, i.e., 620; however, other government-backed loan programs are more lenient and can provide you with a mortgage with low-interest rates with credit scores as low as 580 (or lower).
Making a downpayment shows lenders that you are invested in your home, and often, the higher the downpayment, the lower your mortgage interest rate. Additionally, the more money you invest in your home, the less likely you'll default on the mortgage.
You could pay various types of insurance depending on the loan program; some are cancellable. Thus, you should aim to place a minimum 20% downpayment on your home to get lower interest rates. Individuals who place a downpayment of less than 20% will need mortgage insurance, making their monthly payments even more costly.
LTV (Loan-to-value) ratio
Your LTV is a comparison between the loan amount and your downpayment. Placing a low downpayment while applying for a big loan increases your LTV, increasing the lender's risk. Placing a low downpayment gives you less incentive to repay the loan, and you could default when the times get tough.
Lenders will provide mortgages at high-interest rates if there is an increased risk of default. However, you’ll be more likely to pay off the debt if you invest more money. For instance, getting a $200000 loan on a 3% downpayment means you’ve placed $6000.
Making a 20 % downpayment increases the cash to $40000. Individuals that place $40000 as their downpayment are more likely to pay back their loan or lose their investment.
Lenders will provide a mortgage with low-interest rates if you plan on purchasing a home as your primary residence than one used as an investment property. Primary residences have low-interest rates since borrowers are more likely to make their monthly payments or they could lose their homes.
Investment properties present a more significant risk since borrowers have their primary residence and could neglect to pay back the mortgage if things don't go as planned. This puts the lenders at risk, making them increase the interest rates to help them recoup their mortgage's principal amount fast.
Various states have varying interest rates based on several factors, including demand and the home's location. However, these rates vary only slightly. Thus, you should explore your options and search for homes that fit your budget.
You should consider which state you want to live in, whether the home is in a rural or urban area, and various interest rates.
The loan amount and home price
The loan amount you’ll pay interest includes your home price minus closing costs and downpayment. Usually, borrowers will pay a high-interest rate for big mortgages. However, some programs allow buyers to roll in closing costs, forcing home buyers to pay interest for them.
You should do your research and shop around for homes that are within your budget range. You could use real estate websites to understand better which homes are good for you and projected interest rates.
Longer loans have more considerable interest rates than shorter loans. However, shorter loans have higher monthly payments. Thus, you should choose this option if you have a low debt-to-income ratio and a high income. Often, the loans fall under a 15-year and 30-year period.
There are various loan types, and each has varying interest rates. For instance, government-backed loans have lower interest rates than conventional mortgages. Government-backed loans include VA loans, USDA loans, and FHA loans. You should research to determine if you qualify for these loan programs to get better interest rates.
How to get a better mortgage interest rate in Citrus County, Florida
Here are some things you can do to get the best possible mortgage rate:
Improve your credit score
You could lower your mortgage's interest rates by improving your credit score, helping the lenders view you as an asset, not a liability. You could do this by paying off your debts before applying for a mortgage.
Additionally, you could check with your lenders to determine whether your credit score reflects as it should and correct any discrepancies.
Make a more significant downpayment.
You can also improve your mortgage rates by making a larger downpayment. As mentioned above, making a bigger downpayment shows the lenders that you are more likely to pay back the mortgage since you have substantial equity in the property.
Increase your income
You could increase your income since it helps show the lender that you can better pay back your mortgage in case of any emerging issues. However, this doesn't mean you should switch careers since this could place you in financial trouble if everything doesn't work as planned.
You should also decrease your debt by cutting down on any unnecessary expenditures. Your debt-to-income ratio (DTI) should be 36% or lower. Having a low debt can also increase your credit score, placing you in a better place to get bigger mortgages at lower interest rates.
Consider paying discount points
A discount point refers to fees you pay at closing to lower mortgage interest rates. However, you should only do this if you plan to keep the mortgage for an extended period.
For instance, one point equals one percent of the total mortgage. Depending on market conditions, you could lower the interest rates by 0.25%.
Things to do in Citrus County, Florida
Besides the exciting real estate market, there are plenty of opportunities for families to enjoy quality time together in Citrus County, Florida.
Three sisters springs
Three Sister Springs is open from November to March and is known to be a refuge for manatees. Visit this location with your family and participate in exciting activities like diving, swimming, and boating.
You'll also find various eco-friendly tours you could participate in. You could take your kids for underwater exploration, where they'll see various types of fish and blueberry manatees. Additionally, you could visit the Broadwalk on foot or with a trolley tour if you aren't in the mood to get wet.
The Crystal River stretches over 6 miles and is fed by more than 20 springs. It also connects Kingsbay to the gulf of Mexico. The river provides spectacular views and several aquatic activities perfect for you and your family.
You could take your kids for a swim with the manatees, water skiing, diving, boating, etc. You could also drift along and admire all the beautiful views. Recommended ages are adults, kids over 4 years, and teens.
Crystal River National Wildlife Refuge
This wildlife refuge was founded in 1983 and had some of the best activities you could enjoy with your kids. You should go and experience the country's only wildlife refuge designed to protect the West Indian Manatee (an endangered species).
The refuge features 20 islands and hosts various attractions perfect for adults and kids. For instance, you’ll get a guided tour allowing your children to observe wildlife in their natural habitat. You could also enjoy walks along the nature trails and sport some fish and birds. You could even feed the manatees!
Fort Island Gulf Beach
This beach is 1000 ft. long and open to the public for free. It is one of the best kid-friendly locations, has shallow waters, and a swimming area perfect for children. Additionally, the beach has lots of sunny and salty kids' activities.
Take your children to this location and enjoy lots of fun activities like sunbathing, swimming, and building sand castles. You could also stroll along the beach and enjoy a breathtaking view and some wildlife like birds and dolphins.
Paint the town Citrus
You should take your child here and let them unleash their inner Picasso. The art haven is located in Crystal river mall and is led by professional artists who can help your artistic children open new doors to their creative side. You could let your kids join the classes while you check out more than 1500 art pieces in the gallery.
Purchasing a home in Florida is fantastic, and Citrus County, Florida is excellent since it has the perfect balance between fun and quiet. The county has many fun family activities, making it the perfect place to raise a family.
That said, it would be great to ensure you do everything you can to buy a home the right way, including low-interest rates. This guide is perfect for helping you understand how to do that.