<span class='t-red'>Mortgage</span><span class='t-red'>Rates</span> for First-Timers: A No-BS Guide

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dog cookies home

By Shahram Sondi


For the first-time homebuyer, rate shopping can be an added stressor in an already-huge pile of stress. So in this guide, I’ll break down the basics without the fluff, helping you navigate the complexities of mortgage rates with confidence.

And if you’re in Florida and looking for the best rates, give me a call—I guarantee I can beat any bank or lender. Ready? Let’s dive in.

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The Down Payment Dilemma

First things first – the down payment. You’ve probably heard that it matters, but how much of a difference does it really make? If you’re going for an FHA loan, whether you’re putting down the minimum 3.5% or going all-in with a 20% down payment, your note rate stays the same. However, when it comes to conventional mortgages, the story shifts a bit.

Let’s break it down with some numbers. Say you’re eyeing a conventional mortgage, and you’re torn between a 5% and a 20% down payment. That 15% difference in down payment might not seem like a game-changer, but it can impact your mortgage rate. The borrower putting down 20% gets the upper hand by avoiding Private Mortgage Insurance (PMI), resulting in a lower Annual Percentage Rate (APR).

Loan term

30-yr fixed FHA

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Credit Score Requirements

Here’s the deal: the higher your credit score, the lower your interest rate. But how does it really play out?

Let’s run the numbers. If you have a credit score of 740 or higher, you’ll get access to the best loan rates available – you’re getting the same rate as the folks with an 800 credit score. However, dip below the 740 mark, and lenders start playing the rate adjustment game. It’s like a stepping stone every 20 points. A 720 score gets a better rate than a 700, and so on.

Loan Types

In the mortgage world, one size doesn’t fit all. Conventional, FHA, and VA loans each have their own rules for rates. Picture this scenario: a borrower with a 620 credit score eyeing a 5% down payment. On a conventional mortgage, they’ll end up with a higher APR due to score-driven mortgage insurance. For an FHA loan, things are a little different. These loans get you the same mortgage insurance factor, regardless of the credit score.

VA loans are built for veterans. The rate on a VA home loan tends to be 0.25-0.5% better than a conventional mortgage rate. Why? Because the risk for lenders is lower – it’s guaranteed by the Veterans Administration.

Occupancy Matters

Buying a home is one thing, but how you intend to use it affects the game. Rates for your primary residence are typically 1% lower than those for rental properties. Why? It’s all about risk. Lenders see you fighting to keep your family haven, making it a safer bet than a rental property that might stand empty or face rent collection issues.

State by State Differences

Are mortgage rates the same across the board? Not quite. Take Florida and New York, for example. It’s not about a north-south rivalry; it’s about the numbers. New York’s higher median home prices lead to different rates compared to the sunny state of Florida. Lenders adjust rates based on loan sizes, and the Big Apple’s home prices play a starring role in this regional rate drama.

Fixed vs. Adjustable Rates

Fixed-rate mortgages offer stability – your principal and interest payments are the unwavering rock in your financial landscape. Adjustable-rate mortgages (ARMs), on the other hand, can be a wild ride. The teaser rate might lure risk enthusiasts, but the uncertainty of post-teaser adjustments makes some shy away. It boils down to your risk appetite and a crystal-clear plan to either pay off or sell the property before the adjustments kick in.

Boosting Your Credit Score

So, how do you prepare for the rate game? Take care of your credit score. Keep those credit card balances below 35% of the limit at least a month before applying. Get your hands on your credit report – all three bureaus – and polish it. Once you hit the 740+ score stage, you’re in the sweet spot, enjoying the same rates as the credit score champs.

Private Mortgage Insurance

Your monthly payment isn’t just about the mortgage rate. If your down payment is less than 20% on a conventional mortgage, buckle up for the impact of Private Mortgage Insurance (PMI). Credit scores come into play here, with lower scores resulting in higher PMI factors. Two borrowers with the same rate might find themselves in a PMI tug of war, where a 620-score borrower has higher monthly payments than a 740+ score champion.

Closing Costs

Can closing costs crash the party? When buying a home, they can’t be rolled into the loan, but fear not. Convince the seller to cover them, dance with a low-cost lender offering credits, or be ready to foot the bill. Typical closing costs, around 3% of the purchase price, include doc stamps, title charges, and prepaid items like home insurance and property tax.

Because I’m a one-man shop without those bankers’ overheads, I can give you up to $7k towards closing costs for your first Florida home. Request a quote or give me a call.

Property Types: Single Family Homes vs. Condos

Dreaming of a single-family home? Mortgage rates for these gems usually stand lower than the rates for condos. Condos bring more baggage – HOA approvals, bylaws scrutiny, and occupancy ratios. Less hassle for single-family homes means more room for rate reductions.

How Loan Terms Affect Rates

Understanding how loan terms affect rates is crucial in the mortgage world. Opting for a 15-year mortgage earns you a much lower rate compared to its 30-year counterpart. It’s like getting a half-percent discount for those preferring to pay off their mortgage faster.

APR Demystified

While mortgage rates are important, APR provides a more comprehensive view of the overall cost of a loan. While your mortgage rate affects your principal and interest payments, APR takes into account other things, like origination charges and PMI. When comparing loans, you’ve got to consider the rate and the APR to know how much you’ll really have to pay.

The National Average Myth

The national average for mortgage rates are rarely the best you can find. Less than 25% of borrowers shop around, and the rest end up with higher rates, skewing the national average. Be the exception – compare rates and snag the lowest in the market. If you’re buying in Florida, I can guarantee you the lowest rates in the state. Request a quote or give me a call.

Buy vs. Cash-Out

Loan purpose matters in the rate game. Buying a home offers lower rates compared to cash-out refinances aimed at debt consolidation or home improvements. Lenders reward purposeful borrowing with lower rates.

The Equity Advantage

Risk is a significant factor in determining mortgage rates. Having more equity in your property reduces the risk for lenders. For instance, in a cash-out refinance, if the loan-to-value ratio remains below 60% of the property value, you can expect a lower interest rate.

Landing the Lowest Rates

For most first-time homebuyers, Conventional mortgage loans take the crown, especially when you’re willing to put down 40% of the purchase price. FHA loans don’t play the down payment game, and VA loans, exempt from the funding fee due to disability, come with rates even lower than the best conventional offer.

Current Mortgage Rates

Mortgage rates change daily, sometimes multiple times a day. Smaller lenders and mortgage brokers (like me) can offer lower rates due to our lower overhead costs. When comparing rates, ensure you’re looking at the same timeframe and consider any adjusted origination charges to make a fair comparison.

Check today’s rates

30-Year Fixed-Rate Mortgages

Considering a 30-year fixed-rate mortgage? It’s great for stability, but it comes with a price – typically 0.25-0.5% higher rates than the shorter alternatives. Who are these loans best for? Those who prioritize financial stability and want their principal and interest payments to stay the same throughout their loan term.

Got questions?

  • Credit Score Requirements: For a 30-year fixed conventional mortgage, a minimum credit score of 620 is the magic number.
  • Debt-to-Income Ratio: The maximum DTI for a 30-year mortgage varies, but the standard is 45% of gross monthly income. With excellent credit and high reserves, you might push it to 554.9%.
  • Minimum Down Payment: For primary home purchase, it’s 3% for first-time homebuyers and 5% for others. Vacation homes need 10%, and for rentals, it’s 20%.
  • Credit Report Derogatory Events: To qualify, steer clear of bankruptcies in the last 4 years, short sales in the last 4 years, and foreclosures in the last 7 years (4 years if included in bankruptcy).

The Bottom Line

Hopefully now you’ve grasped the basics of mortgage rates, from understanding down payments and credit scores to navigating different loan types and interest rates. Equipped with this knowledge, you’re ready to tackle the journey of homeownership. Keep in mind that the mortgage process can be complex, but staying informed means avoiding unexpected surprises.

If you’re buying your first home in Florida, I can get you a lower rate than any bank or lender in the state—guaranteed. Give me a call to get the ball rolling.

Need more guidance or inspiration? Keep exploring mortgage content.