Financing a house is a significant investment that requires careful planning and research. As a homebuyer, you want to secure the best loan for your financial situation, but with so many options available, it can be overwhelming to know where to start. In this blog post, we’ll explore seven things you need to know about financing a house and what you should be doing right now to get the best loan.
1. What is an Interest Rate?
An interest rate is a percentage charged by a lender to borrow money. When you finance a house, your interest rate determines how much you’ll pay in interest over the life of the loan. The higher your interest rate, the more you’ll pay in interest.
2. How are Interest Rates Set?
Interest rates are set by the Federal Reserve, which is the central bank of the United States. The Federal Reserve adjusts interest rates to control inflation and promote economic growth. When the economy is strong, interest rates tend to rise, and when the economy is weak, interest rates tend to fall.
3. How Have Interest Rates Historically Changed?
Historically, interest rates have fluctuated greatly. In the 1980s, interest rates were as high as 18%, and in 2012, they were as low as 3.31%. Currently, interest rates are hovering around 6-7%, making it a great time to finance a house. Keep in mind, that refinancing a loan is often an option if rates should drop after your purchase.
4. Fixed vs. Adjustable Interest Rates
When you finance a house, you can choose between a fixed or adjustable interest rate. A fixed interest rate stays the same over the life of the loan, while an adjustable interest rate can change over time. If you plan to stay in your home for a long time, a fixed interest rate may be the best option as the market can vary over time.
5. Credit Scores and Interest Rates
Your credit score plays a significant role in determining your interest rate. The higher your credit score, the lower your interest rate. If you have a low credit score, you may still be able to secure a loan, but you’ll likely pay a higher interest rate which can impact your mortgage payment substantially.
6. Down Payments and Interest Rates
The size of your down payment can also impact your interest rate. Generally, the larger your down payment, the lower your interest rate. This is because a larger down payment means less risk for the lender.
7. What You Should Be Doing Right Now to Get the Best Loan
To get the best loan, you should start by researching lenders and comparing interest rates. You should also work on improving your credit score and saving for a larger down payment. It’s also essential to get pre-approved for a loan before you start house hunting, as this will give you a better idea of what you can afford.
Financing a house is a significant investment that requires careful planning and research. By understanding how interest rates are set and what factors impact them, you can make an informed decision and secure the best loan for your financial situation. And if you need any help with your property purchase, the agents at Wendy Clark, Broker, Coldwell Banker Holman Premier Realty are always here to help. Reach out to us today! (541) 281-6316