Q: I'm in the market for a house, and the news just reported that mortgage rates were down below 3.5 percent. Can I count on getting that rate when I budget the price I can afford, or are there other factors that could affect the rate I get?
A: Before you get too serious, you might want to contact a mortgage lender or two about a preliminary mortgage quote. While following the national average is useful to give you a rough idea of where mortgage rates are, there are at least two factors that will affect the specific rate you get:
- Your credit history. This will have a great deal to do with the mortgage rate you get -- or whether you can get a mortgage at all. It's not enough not to have black marks on your credit. If you are young and haven't established much of a credit history, that could count against you as well. Meanwhile, you should be aware that the underwriting standards mortgage companies use are something of a moving target, so you won't really know where you stand until you start talking to mortgage lenders.
- Location, location, location. You've probably heard that location is practically everything when it comes to real estate prices, but it also makes a difference when it comes to mortgage rates. Broadly speaking, there are regional differences in mortgage rates of 5 to 10 basis points. More specifically, in any given area the strength of the housing market and the competitiveness of the mortgage business will also affect mortgage quotes.
Strangely, people tend to think of getting a mortgage quote as something you do near the back end of the process; i.e., once you've got your eyes on a house, you start looking into the mortgage. However, unless you get a reasonable idea of what your mortgage rate will be, you don't really know what you can afford, and without knowing that, it's hard to see how the house-hunting process can really get started.