On the other hand, adjustment rates start as a fixed rate for a limited duration and then become adjustable for the remainder of the repayment term. The rate will fluctuate depending on the state of the economy and the real estate market. Both fixed and adjustable rates have pros and cons, and the choice is entirely upon you.
These two are just some ways lenders determine what interest rate to charge you. Read more below.
Are you a first-time homebuyer? Learn more about the available FHA home loan options in Lafayette County, Florida
The credit score is one of the crucial things lenders will look at when qualifying you for home financing and determining what interest rate to charge you. It tells lenders how likely you are to pay your loan and whether or not you pay on time. A credit score is a three-digit number that ranges between 300 and 850. The higher the number, the better you look in the eyes of a lender.
A credit score is calculated based on a few other factors- your repayment history, debts, number of active accounts, credit utilization, credit mix, and credit age. When seeking home financing, a higher credit score will get you a lower interest rate because lenders are confident that you will pay your loan on time. On the other hand, a lower credit score will mean higher interest rates in addition to paying mortgage insurance.
A down payment is the amount of money you give upfront as your first payment towards your home. All lenders require that any borrower seeking home financing pay a down payment as a show of commitment. The minimum amount to pay varies with lenders. Your down payment will determine how much interest you get charged. Essentially, the higher you put down, the lower the interest rate, and vice versa.
Lenders will also require you to pay mortgage insurance with a lower down payment which may or may not be cancellable. This will depend on the lender's terms and loan program. A down payment of 20% and more will attract a lower interest rate, while a down payment of less than 20% will qualify you for higher interest.
The loan-to-value ratio (LTV) is the difference between the amount you put down and the total loan amount for the home. When you put down a more significant amount, you are left with a smaller loan to pay than when you put down a smaller down payment. Therefore, your LTV ratio is considered lower. Conversely, when you put down a smaller down payment, you are left with a bigger loan; therefore, your LTV ratio is higher.
LTV ratio is calculated by dividing the amount to be borrowed by the property value amount and expressed in percentage. For instance, if the home you intend to purchase has a price tag of $80,000 and you put a 20% down payment, you've already paid $16,000 towards your home. The money you will borrow, therefore, is $64,000.
In this case, your LTV ratio is $64,000 / $80,000 multiplied by 100 which comes to 80%. On the other hand, if you put down 10%, you will borrow $72,000. LTV ratio will be 72,000/80,000 multiplied by 100, which comes to 90%. From the two scenarios, you can tell that you will pay more interest in the second scenario, where your LTV ratio is higher.
Lenders use the LTV ratio to determine what level of risk they are exposing themselves to. They perceive that borrowers with a higher LTV have very little equity on the home. Therefore, in the event of a foreclosure, the lender may not be able to recover their outstanding loan fully and still make a profit from the sale.
Property Type and Purpose
Lenders will also calculate mortgage rates depending on the type of property you seek financing and its purpose. A primary home residence attracts a lower interest than a commercial or investment property.
Lenders perceive that a borrower will be less likely to default if they take a loan to purchase their primary home than when it's a second home or investment property. After all, no one wants to one day wake up to no roof over their head.
A home loan is often a long-term loan that can take up to three decades to pay. Most lenders will offer 15-year, 20-year, or 30-year loans, with 20 and 30-year terms being the most popular.
The long term offers flexibility for the borrower; however, the lender rewards themselves with interest rates over the term. The interest rate depends on the loan term you choose. The longer the term, the higher the interest charged. For instance, a 30-year interest may be 5%, while a 20-year interest may be 4%.
Other Determining Factors
Other hidden factors generally influence mortgage rates today that are beyond you or the lender. The demand for market bonds (treasury and corporation bonds), for instance, will either ramp up the interest rates or lower them depending on the trajectory of the demand.
The relationship between the two is inverse. When there is a high demand for bonds, the price for the bond will go high, pushing the mortgage interest down. Whereas when the price of the bonds goes lower, it raises the mortgage interest.
Other hidden factors that borrowers may not affect the interest rate levied on them are the Federal reserve rates and inflation. Fed rates may not directly ramp up the interest, but an increase or decrease in the rates spills over to mortgage rates.
Inflation, on the other hand, has a direct impact on mortgage rates. When inflation is high, lenders have no choice but to increase the rates since, technically, the cost of borrowing has gone up. The same happens when the economy is doing poorly.
Why Are Mortgage Rates in Florida Going Up?
Mortgage rates in Florida are almost hitting 6%. This is the highest rate seen in the last several years. Several factors have contributed to this sharp increase, as discussed below.
This year has seen inflation shooting to a new year. It has been the highest in the last four decades. This has caused a stir in the economy, real estate market, and across the board.
With high inflation, the cost of everything has gone up because the price of money has also gone up. This means it's more costly to borrow now than a year ago. This has left the lenders with no choice but to raise the rates to cover their bases.
Federal Reserve's New Rates
The recent move by the Federal Reserve's campaign to raise interest rates by 0.75$ points to tackle the rising inflation has also spilled over to the mortgage rates. The rate-setting has caused the mortgage interest rates also to go up.
While it is an excellent move by the Fed Reserve, it does not favor first-time homeowners and homeowners who want to refinance their mortgages.
Current Low Sales in Real Estate
High inflation, a staggering economy, and high borrowing cost have all seen home buyers pull back from refinancing their mortgages or investing in new property.
This is because the buyers' purchasing power has shrunk, leading to a significant reduction in sales in the real estate market. Lenders charge hefty mortgage rates to make as much money as possible from the few buyers. This means low profits for those in real estate.
How To Get the Best Mortgage Rates in Lafayette County, Florida
While it isn't much you can do about factors like market bonds and inflation, there is much you can do to get the lowest possible rates, especially with the current rise in rates in Florida.
It's essential to find ways that will qualify you for lower rates. This will save you thousands of dollars to channel into other purchases and investments.
Here are some things you can do to get the lowest possible mortgage rates today.
Compare Rates from Multiple Lenders
As you would when shopping for any other major purchase, mortgage shop to find the lender with the best rates and terms.
Talk to several lenders besides your credit union and banks and ask for quotes. You will be surprised by how low some lenders can go regarding rates.
Increase Your Debt-to-Income Ratio
Your DTI is the ratio between your monthly gross income against your monthly debt repayments. Ideally, you want to have a higher income and fewer debts but because that is not always the case, ensure your income and debt ratio is favorable to get you a lower interest. You want to aim for a lower DTI.
This will enable you to pay your loan comfortably, and in case of any eventualities, you can still pay your loan without overstretching your finances. Lenders recommend a DTI lower than 36% of your gross income.
Conventional and FHA loans require a higher DTI of 45% and 43%, respectively. There are, however, instances where a lender may accept your higher DTI. For instance, if your savings are substantially high or you put down a larger down payment.
Lock In Your Rate
Closing on the house can take 30-45 days, sometimes up to 50 days after signing a purchase agreement. This is a long time, and considering that interest rates change daily, you may pay a higher interest rate when the loan closes.
To avoid such a scenario, you can ask the lender to lock in the rate when it is still favorable. However, rate lock policies may vary depending on the lender. It's always good to ask about the rate lock policies beforehand.
Save Up for a Bigger Down Payment
Strive to save up more than 20% for your down payment. This will save you costs because you will pay low interest and not pay mortgage insurance.
More significant down payments will always qualify you for a lower mortgage rate because your loan-to-value ratio is higher.
Work On Your Credit Score
Your credit score is the ultimate measure of your creditworthiness. It determines whether or not you get a loan and how much interest your loan will attract. A slight difference of even 100 points can save you or cost you hundreds of dollars in interest.
It could mean paying 3.25% interest over 30 years instead of 3%. Work on getting your credit score to at least 760 and above for conventional loans, 500 and above for FHA loans, 620 and above for VA loans, and 640 and above for USDA loans to get you lower rates.
There are plenty of ways to improve your credit score:
Paying your debts and bills on time
Lowering your credit utilization,
Cutting down your debt balances to lower than 30%
Paying down credit cards with high balances
- Using balance transfers to free up some of the credit
If unsure of how to improve your credit score, talking to a credit counselor can help get things in perspective.
Why Is Lafayette County, Florida a Great Place to Live with Kids?
Lafayette County, Florida, offers some of the best places for families to settle down with the great weather and a friendly community. Besides top-notch schools, there are plenty of fun activities for your kids to enjoy all year round.
Here are some of the exciting places that children can enjoy during their stay in Lafayette County:
Take a Trip to the Blue Spring State Park
Taking a trip to Blue Springs is a perfect getaway for kids, with plenty of adventure-filled activities to keep them entertained.
The children can swim in the spring as they cool off or enjoy water sports such as canoeing and kayaking. This state park also has a nature trail where the kids can explore as they watch different wildlife.
Exploring the Suwannee River
The Suwannee River is one of the famous attractions in Lafayette County, which also hosts a beautiful state park, and its natural beauty is breathtaking.
The kids can enjoy hiking, fishing, or having a picnic. You can also decide to camp overnight in the beautiful cabins or the available facilities at the campground.
Visit the Veteran’s Memorial Park
Veteran's Memorial Park in Lafayette County is a large park with picnic areas, a band pavilion, and a kids' play area. It is one of the free attractions, so you can have a great time without breaking the bank.
This park is excellent for family fun, like taking a stroll with the kids or having a picnic under the shade of the oak trees in the park.
Discover the Troy Springs Wildlife Management Area
Troy Springs is a great spot to hunt game in the upland forest and is open to the public for biking, hiking, fishing, and horseback riding.
The kids can have fun watching wildlife, such as gopher tortoises, white-tailed deer, rabbits, and red-shouldered hawks, among others. The picnic tables under the beautiful canopies are also perfect for picnics with the kids.
Kayaking at the Dowling Park River Camp
Enjoy a private canoeing and kayaking adventure on the Suwannee River using Dowling Park River Camp as a base camp.
You can also go biking and hiking along the trails with your kids. And after a day of kayaking in the river, you can pitch your tent for an overnight stay at Dowling Park
Mortgage Rates Today in Lafayette County, Florida - The Bottom Line
Due to the high inflation and ailing economy in Florida and the entire country, mortgage rates today are almost hitting 6%, an all-time high. This has made many people pull back from buying homes here in Lafayette.
While there is nothing much you can do about these factors, there is much you can do to get a lower interest rate. You can do some things to qualify for the lowest possible rates by improving your credit score, saving up a more significant down payment, lowering your debts, and locking up the rate.