Every home purchase involving a mortgage includes two major financial considerations: the price of the home and the loan’s interest rate. How do these two factors affect the overall price of a house, and how do they affect your decision to purchase a home? There are various factors that determine your mortgage and the dynamic between your interest rate and the purchase price of your home. Before we dive into that, it’s important that we clear up some common misconceptions that can lead homebuyers astray. 

3 Common Misconceptions About Interest Rates

Your Interest Rate and Home Price Are the Only Items Considered

The total amount of your sale and your interest rate are not the only factors in calculating your monthly mortgage amount. The final mortgage payment may also include private mortgage insurance (PMI), homeowners insurance, and property taxes.

The Mortgage Rates You See Advertised Are the Best Rates

Your lender will consider your overall credit score, your debt, the type, the purchase price of the home you are interested in buying, and your down payment in determining your lending rate. This could be better or worse than the advertised rate.

Your Best Credit Score is Used in Your Loan Approval Decision

Unfortunately, lenders use a report that compiles your FICO scores from the top 3 credit reporting agencies and usually base their loan decision on your middle credit score. If you are applying with a partner, they will use the lower middle score.

What Is Included in My Mortgage Cost?

The cost of your mortgage and what you will pay back to your lender over the life of your loan includes several variables. 

The first and largest part of your mortgage calculation is the total purchase price of your home. Next, your lender will use your approved interest rate and factor that into your monthly payment. If your total down payment is less than 20% of the purchase price, your lender will require Private Mortgage Insurance (PMI), which will also be factored into your monthly payment. 

Lastly, your property taxes and homeowners insurance will also be calculated and factored into your monthly payment amount.

Should I Wait to Buy?

It may seem a little daunting to buy right now, but keep a few things in mind. Historically speaking, interest rates are still very low. Industry experts have predicted that home prices will level off, but not fall. Home prices and interest rates have an inverse relationship. If your interest rates are low and a home price is high, you may pay less overall than if interest rates were high and the home price was low. If you can comfortably afford the home you want today, there is no reason to wait. The FED is set to raise interest rates again in mid-June so NOW is the time to buy!

Let Our Team Help You Today!

An experienced real estate professional can make all the difference in buying your dream home. Did you know that nearly 50% of the home sales last year were done OUTSIDE of the MLS? This means that most buyers are missing out on half of the homes that are actually available. 304-316-6412 is experienced in guiding clients through the changing real estate market, interest rates, and negotiations. Let us take the stress of buying off your shoulders by getting you Priority access so you see the home first before other buyers, and we can negotiate the lowest possible price for you! Contact us today to learn more at 304-316-6412.