Once you start shopping for the lenders and rates, you do not magically land a great interest rate. Beyond running a comparison, several factors work behind the mortgage rate. Yes, you may think the credit score is the sole factor; however, the reality is quite different. In fact, the lender goes over various factors to check whether you will qualify for the loan product. Furthermore, the factors play a critical role in deciding the mortgage rates.
As a buyer, the road is not so easy. There are a lot of things at stake. Along with your monthly expenses, utility bills, and food bills, a high monthly mortgage payment is simply a nightmare. Let’s just say, you may have to pay thousands of dollars more. Over the 15 or 30 years, such expenses might push you to break one of your deposits.
Well, you can be hopeful about finding the lowest mortgage rates in Houston. Things seem easy once you start following the criteria and take action. Check where your profile stands and how you can improve your potential of unlocking the best interest rates. So, let’s take a look below.
Income Stability is a Huge Factor
Lenders prefer borrowers who have had steady employment for at least 24 months. It is good if they stay in the same company, but higher pay is always a better idea. Long periods of unemployment might be a red flag when the FICO scores went downhill. However, lenders might show stricter policies with self-employed people. They can get a bank statement loan, but the loan rates might put you off. Otherwise, regular employees might have to submit evidence of their pay stubs and tax returns.
The Percentage of Down Payment
20% is usually the starting point of a large down payment, but you can go higher with the percentage. A 30% or 40% down payment might not be a bad idea because the lender will keep you out of the risk factor. Nevertheless, a large down payment is not everyone’s cup of tea. They should remember that a mortgage with a 3% brings along a higher risk. Therefore, you might be drowning in a sea of a high loan rate. 20% effectively removes the mortgage insurance, and it is also applicable for FHA loans. Some lenders might exempt the FHA mortgage insurance if you can put down 10% of the loan value.
Savings or Cash Reserves for Future
For home loans, cash reserves involve money market funds, saving accounts, and deposits. Basically, the lenders see how many months you can make payments for the house loan without touching your salary. Also, the saved amount of cash does not refer to funds allotted for retirement plans. The basic requirement for cash reserves is that you must have liquid cash saved for at least two months. With higher risk loans, the amount of cash reserve is also higher.
So, remember these two vital things and snatch away the lowest mortgage rates in Houston. Get started now!