Interest Rates

Shopping for good interest rates is always part of buying Newport Beach real estate. And just like a Newport Beach home search, your decision will have long-term consequences. Remember, you'll be paying the interest rate for several years-and you don't want to get stuck with one wrong decision.

Several things affect mortgage interest rates, including the Newport Beach real estate market, your financial situation, and sometimes even your long-term goals. Each factor should play a role during your real estate search. You should pay particular attention to:

Credit score: Your credit score details your previous and existing loans, payment histories, income and employment. The higher your credit score is, the lower the risk you pose to potential lenders. Negative items like missed payments and tax liens will hike up your rate. With a good credit score, you don't just get a lower rate; you also have more options in your Newport Beach real estate search.

Down payment: The more money you can pay up front, the better the impression you make on your lender. Newport Beach CA lenders generally set a minimum of 20% of the amount for the down payment; otherwise, you are considered high-risk and are given a higher interest rate. When conducting your Newport Beach home search, try to limit your choices to those that meet the 20% rule.

Debt-to-income ratio: How much of your monthly income will be taken up by your mortgage and other debts? Lenders have maximum DTI ratios that they consider safe; beyond that, you'll either get denied or get a higher interest rate. If you don't meet the DTI requirement, you can either limit your real estate search to cheaper homes, or add a second borrower (such as your spouse) so your incomes can be considered together. Just remember that the co-borrower's debts will be taken into account as well.

Loan amount: Most lenders have a minimum and maximum amount they allow for a single loan. In Newport Beach CA, the upper limit is usually $999,999. A Newport Beach home search may turn up several homes that exceed the value. Lenders can either split your loan into two smaller ones, or make up for it with a higher interest rate.

Mortgage type: You may encounter different types of mortgages during your real estate search, many of which have further subtypes. In fixed-rate mortgages, the shorter the term, the lower the interest will be since there's less of a risk to the lender. Adjustable-rate mortgages often come with attractively low interest rates, but they can hike way up after the first few years. Don't compare interest rates by mortgage type alone; take more time in your Newport Beach home search to understand the full terms of each offer.

Occupancy: Are you conducting your Newport Beach home search for a vacation home, a rental property, or a primary residence? Lenders consider this because it affects how the home will be treated. For example, rental properties tend to get a lot of abuse, so they generally get the highest rates. Banks are usually more lenient towards people buying a primary home.

Points: Few people take points into account during their Newport Beach real estate search. A point is a fee paid at closing that's equivalent to about 1% of the loan amount, and will be counted against your interest rate. Generally, each point you pay will reduce your interest rate from one-eighth to one-quarter of a percent; that is, if you buy two points for $2,000, you can cut down your interest by up to 0.5%. It's usually best to buy points if you stay in your home long enough to for the savings to add up.