The median price of a home in Texas has been climbing steadily, reaching $351,000 in 2023. Although this is about $50k less than the national average, it's still quite an amount that the vast majority of prospective homebuyers cannot afford out-of-pocket.
Thankfully, there are a handful of home financing solutions that are making the dream of homeownership come true for many people. If your time to buy a property is approaching, you're certainly looking at mortgage rates and wondering how they will affect your plans. The interest rate on a mortgage has a huge impact on the total cost of buying a home.
In this article, we're diving into the world of mortgage financing. Dive in with us and learn!
Mortgage Rates Keep Changing
In January 2021, the rate on a 30-year fixed mortgage in the U.S. fell to a record low of 2.98%. Two years later, it's at 8% on the same mortgage.
People who bought homes during that period are happy they made a smart move. Those who didn't, especially because of the economic uncertainty that came with the COVID-19 pandemic, are now ruing their missed opportunities. The Federal Reserve adjusts the funds rate from time to time, which affects the rate retail banks charge on their credit facilities.
Getting a 3% rate vs 8% on a three-decade mortgage makes a world of a difference.
If you're borrowing $300,000 over 30 years, you'll pay a total of $570,000 to the lender. At 8%, you'll pay a whopping $1.02 million!
Clearly, it's in your best interest to get the lowest rate possible. The good news is it's possible to get a rate that's below the market average.
Your credit score can positively or negatively affect your mortgage interest rate. Lenders typically have minimum credit score requirements for various mortgage options, but that doesn't mean everyone who meets the minimum score will get the same rate.
Borrowers with excellent credit are in a stronger position to negotiate for lower mortgage interest rates since they're low-risk customers.
Beyond your credit score, lenders can also dig deeper into your credit history. If you have red flags like car repossessions and credit card defaults on your record, the lender can charge you a higher rate, approve you for less money than you applied for, or reject your application.
Type of Mortgage
There are different types of home loans:
- Conventional mortgage
- FHA home loan
- VA loans
- USDA loans
As such, the type of mortgage you go for will have an influence on the interest rate. Government-backed loans like FHA, VA, and USDA loans typically have the lowest rates, while conventional loans are usually pricier.
Keep in mind that any of these mortgages can have either a fixed rate or an adjustable rate. A fixed rate is constant throughout the loan term, while an adjustable rate can reduce or increase, often depending on market conditions.
Keep an Eye on Mortgage Rates
Mortgage rates run the housing market. When they're low, buyers tend to flock to the market, which, conversely, can push home prices higher. When rates are high, it's generally not an attractive time to buy a home because you'll end up paying a lot more to the lenders.
PMI North Texas is here to help you find the property of your dreams. With an intricate understanding of the North Texas market, you can count on us to give you the best guidance. Get in touch with our team to learn more about services.