A new home is likely one of the most expensive investments a person can make. To finance the purchase, one should explore home loan options to understand how much they can afford. It is pertinent to note that not all mortgages are the same, and interest rates may vary depending on the mortgage type. Therefore, proper research helps choose the best option that suits one’s financial condition and helps save big in the long run.

Factors affecting home loan interest rates
Several factors affect home loans interest rates, including-

Economic conditions
Home loan interest rates can be affected by the status of the economy, which includes elements like inflation, employment rates, and the health of the housing market.

Central bank policies
Home loan interest rates may be affected by central bank policies, including those of the Federal Reserve in the country. For example, central banks may raise or slash interest rates to prevent inflation, foster economic expansion, or stabilize the economy.

Credit score
A borrower’s credit score plays a significant role in setting the interest rate on a home loan. Lower interest rates are typically associated with higher credit scores.

Loan amount and term
The loan size and period can also affect home loan interest rates. Higher loan amounts and longer loan durations could mean higher interest rates.

Down payment
A bigger down payment could lead to a cheaper interest rate because it lowers the lender’s risk.

Home loan types

• Conventional loan- Home loans most frequently come in the form of conventional loans. These loans meet lenders’ standards to resell them to government-sponsored enterprises.
• Conforming loans- These are subject to the federal government’s maximum loan limits.
• Nonconforming loans- A jumbo loan is the most common type of nonconforming loan. Jumbo loans are so-called because their loan amounts routinely surpass conforming lending limits.
• Federally backed loans- Government-backed loans are mortgages insured by various federal bodies. Lenders are protected since the agency must manage the default if the borrower cannot repay the loan. This safety blanket allows lenders to offer loans to more prospective buyers.

Bad credit home loans
When you have bad credit or no credit history, it may be challenging to secure a loan. Like most financial products, customers must submit an application stating their income information and consent to a credit check before being approved for a loan. Lenders like to work with clients with a track record of making on-time debt payments and earning enough money while following all restrictions and agreements.

A bad credit score of less than 670 precludes you from obtaining dependable banking solutions. However, a few lenders assist such people in refinancing high-interest debt, consolidating debt payments, and borrowing money for emergencies such as medical bills and auto repairs.

Home loan calculator
Using the required inputs on the home loan calculator, you may get an indication of your prospective monthly mortgage payment. Some of the required factors are-

• The cost of your home
• Your down payment
• Loan term
• Your homeowner’s insurance
• Property taxes
• The interest rate on the loan

Home loan eligibility
You must have proof of income for the next two years, a down payment of at least 3.5%, and a credit score of at least 620. However, schemes are available to assist first-time homebuyers with a low income, no down payment, and credit scores as low as 500.

It may be hard for first-time home buyers to sort through all the home loan eligibility benchmarks. Therefore, spend time deciding how much of a home one can realistically afford, then fix the budget accordingly.