When applying for a mortgage, a borrower’s primary concern is the mortgage rate. Locking in a low interest rate is one of the most important aspects of a mortgage since it greatly influences the size of your monthly payments. On a large loan like a mortgage, just one percentage point can add up to a significant amount of money.
There are 3 main determining factors of Kansas City mortgage rates:
- Your credit score
- Income and expenses
- Employment history
Credit scores have a direct impact of Kansas City mortgage rates. It is a measure of your ability and willingness to pay your debts on time. The higher your score is, the lower your mortgage rate will likely be. A credit report gives lenders an accurate picture of your credit history and enables them to offer program options that fit your needs. Lenders generally prefer to work with borrowers who have:
- Low debt balances
- A long history of on-time payments
- A mix of credit utilization like credit cards or an auto loan
If your credit score is between 720 and 850, you will typically receive the best interest rate your mortgage company has to offer. If your credit score is below 620, you will be offered significantly higher interest rates than others with better credit ratings. For most lenders, potential borrowers with scores of 570 or less are not eligible for any type of home loan.
Income and Expenses
It’s not only your job, but your lender’s job to make sure you do not end up borrowing more money than you can comfortably pay back. Your total liabilities cannot exceed 40% of your total gross income, in order to be approved for a home loan. This percentage is calculated by using the debt-to-income ratio and is almost as important as your credit score.
Along with looking at your assets and liabilities, lenders will also want to see proof of at least 4 to 6 months of reserves or emergency funds. This can be in the form of cash in a savings account or other liquid assets such as:
- Stocks and bonds
- Insurance policies
- Retirement accounts
If you do not have these items, you will be seen as more of a risk, therefore your mortgage rate will be higher.
A strong employment history shows stability and proves you have the means to pay your home loan. Most lenders will require proof of two years of consistent employment in the same position or industry through paystubs and tax returns. However, if you have been affected by the tough economy like so many people have, there is still hope for homeownership. You could still qualify for a home mortgage if you met other conditions, but you will end up paying higher Kansas City mortgage rates.