Answers to Frequently Asked Questions About Mortgages
At Bank of Blue Valley, we understand that mortgages are complex. That is why we have put together the following “FAQs” – frequently asked questions – about mortgages. We hope you find an answer to your specific mortgage-related question. If not, please feel free to contact Bank of Blue Valley for assistance.
How are mortgage rates determined? There are many factors that influence mortgage rates. The short and least complicated answer is that mortgage investors, such as Fannie Mae and Freddie Mac, buy loans made by lenders and hold them as a portfolio or bundle them with other loans in mortgage-backed securities. They are then sold to Wall Street, mutual funds and other investors, which in turn trade them on the secondary market. These secondary market investors have the most control over mortgage rates.
Why do mortgage rates fluctuate? When the economy is doing well and in an upswing, the demand for higher yields from investors goes up. This causes mortgage lenders to raise mortgage rates. The opposite happens when the economy takes a downturn.
How do I get the best mortgage rate? While many factors regarding mortgage rates are out of your control, one thing that is in your hands is your credit score. Having a good credit score, which is generally considered as a score of 720 or higher, shows you can manage debt responsibly and represent a lower risk to lenders.
How do I improve my credit score for the best mortgage rate? Improving your credit score can take time. The best thing you can do is pay off your debt, starting with high interest debt like credit card debt. Make all of your payments on time and shoot for balances of no more than 10-20 percent of your credit limit.
How large of a down payment should I make? Your down payment depends on your lender’s requirements for the mortgage program or type you have chosen. Just remember: the larger down payment you make, the smaller amount of money you have to finance through your mortgage, so the less interest you will pay.
What is private mortgage insurance? Private mortgage insurance, or PMI, ensures that your lender still gets paid in full if you discontinue payment on your mortgage for any reason. PMI can be waived if you make a down payment of at least 20 percent of your new home’s value.