If you’re like most people, you will rely on a mortgage lender when buying a home. While securing a favorable mortgage rate is largely out of your control, there are some aspects you can change to ensure you get the best value. Before you start shopping for a new abode, below is more information about some of the factors that influence a mortgage so that you can make the best decision. 

What Determines a Mortgage Rate?

1. National Economy

Lenders take the country’s economic status into account when setting mortgage rates. If unemployment is high or there is a recession, lenders may offer lower rates. This entices people to buy homes when they may be more apprehensive about spending.

On the other hand, when the economy is booming and employment rates are high, people tend to be more confident and flexible with their spending. In this case, lenders do not need to provide as much incentive to buy, and mortgage rates may be higher.

2. Credit Score

A credit score shows how reliable you are with regard to finances and paying off bills. If you have a low score, lenders may see it as a red flag that you cannot make your mortgage payments each month, therefore increasing their risk.

However, you can take steps to show you are responsible and boost your score. If possible, pay as many outstanding bills as you can before shopping for a home. This will lower your debt-to-income ratio, which shows that you have more money available for a mortgage.

3. Home Value

The home that you want to purchase will also affect the mortgage rate that you receive. Lenders divide the loan amount by the home price, then multiply the value by 100 to get a percentage. This percentage is known as the loan-to-value (LTV) ratio.

Lenders prefer value under 80% because there is a higher likelihood that you will make the payments promptly. If the LTV is over 80%, the mortgage rate may be higher to offset the risk of defaulting. Therefore, by making a bigger down payment, you will reduce the loan amount and rate. 

If you’re shopping for a home in Baldwin County, AL, turn to Fairway Independent Mortgage Corp. - The Sharon Thompson Team. This experienced mortgage consultant and lender helps people find financing to secure their dream homes. Whether you need mortgage refinancing, FHA loans, or help buying a vacation property, they will help. Call (251) 298-5304 to speak with a friendly team member and schedule an appointment. Visit the website for more resources about buying a home.