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Mortgage Guide

How to get a home loan

What Mortgage Rate Can I Expect?



Question:

"I'm looking to purchase my first home and what I've been trying to do as of late is determine what I can actually afford. I've listed some background information below, and curious if anyone has a good sense of what type of rate I would get on a 30 year fixed. Does the rate vary based on the amount of the loan and/or the down payment? Again my main goal here is to find out if I can get a reasonable mortgage and if so what rate, and then compare that + other home ownership costs with what I'm currently owning.

  • Credit Scores: Mine is low 600's as I had a something go to collections in 2015 (credit karma says 675 but I believe it's a bit lower) - Wife's is low 700's
  • Household Income: Combined $140k
  • Home Price: Looking in the range of $350-$500k.
  • Current Rent (for comparison): $2375 monthly, not including utilities.
  • Area: We currently rent in the Seattle area which as many people know is booming right now. I'm not looking to purchase in the city because frankly the idea of buying a small condo for $600k is not appealing but rather 30 min to an hour outside of the city.

If there are other factors I should consider, please let me know your thoughts!"

 

Answer:

Let's look at a few of factors that go into determining your interest rate:

Debt to Income Ratio (DTI): The max Debt-to-Income Ratio you can have and still qualify for a mortgage is 50%. Add up all of your monthly payments and divide by your gross monthly salary to calculate what your DTI is. Example: Let's say you make $10,000 per month...$5,000 is the absolute max you can spend on all liabilities and your mortgage payment combined. If you have $1,000 in monthly payments, then $4000 is the max you can afford for your monthly mortgage payment.

Down Payment: As far as effecting your rate, if you put 20% down, you'll have a lower rate and you won't have to pay monthly mortgage insurance. If you put less than 20% down, you will have to pay a monthly mortgage insurance premium and your rate will be higher because your loan will be considered higher risk. 

Credit Score: Your credit score is lower than your wife's and that is the score that will determine your rate if you are both on the loan. 620 is the minimum credit score you can have and qualify for financing using a conventional mortgage.If your score is lower than 620, you'll need to look at FHA financing which will end up costing you more each month. The minimum credit score accepted by FHA is 580. 

Using the information you provided, I ran a scenario through our Mortgage Calculator with the following parameters:

  • Credit Score: 620 - 640
  • Purchase Price: $300,000
  • Down Payment:   $60,000

Based on those parameters, today's rate would be about 4.75%. This would put your monthly Principal and Interest payment at $1,252. Once you factor in your monthly property tax and insurance payment you'll have a pretty good idea of what your total monthly housing payment will be.

                                                                                              

Did this help? Find more answers to underwriting questions here.

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