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Five Interest Rate Terms to Know When Buying a Home
These five terms will help educate you about what your interest rate is made up of. Plus, these terms give you get a good grasp of some factors that impact your mortgage or the ability to get one.
Congratulations! You’re ready to buy your first home. As you shop for a mortgage, you’ll come across the term “interest rates.” While you may have a basic understanding of interest — money lenders charge in exchange for allowing you to use their funds to make a purchase — mortgage interest rates can be complex and confusing.
“Many factors go into determining the interest rate your lender will offer you,” says Jason Langston, Director of Customer Experience and Marketing for Vanderbilt Mortgage and Finance, Inc. “By understanding the factors that influence your interest rate, you can obtain the best possible mortgage plan and get into the home of your dreams quicker.” dreams quicker.”
A variety of factors determine your interest rate, including:
Down payment: Your down payment reduces the amount you will owe on your home, and shows your lender your capability to manage funds. Most lenders like to see 10-20 percent of your home’s cost as a down payment.
Collateral: This is the property you pledge as security for the loan. Lenders ask for this to protect themselves in case a borrower defaults on the loan. Either the home itself or the home and land together can be collateral for a loan on a manufactured home.
Credit score: Lenders will review credit scores for everyone listed on the mortgage application. Generally, the better your credit score is, the more likely it is that you may qualify for a more favorable interest rate. A good credit score can help you negotiate the loan terms with your lender.
Origination cost: This is the amount the lender charges to process your loan application, which includes gathering and reviewing all loan application documents, underwriting and closing your home loan.
Loan amount: The amount you need to borrow is calculated by the purchase price, minus your down payment, plus any other costs that will be covered by the loan including closing costs and third-party fees.
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