If you’ve been thinking about buying a home here in Parker, Colorado you’ve probably been keeping an eye on mortgage rates. And lately, some of the headlines haven’t exactly been encouraging.

But there’s something important I remind buyers all the time:

The mortgage rate you see quoted online or in the news isn’t necessarily the mortgage rate you’ll actually get.

There is no single mortgage rate that applies to every buyer.

The rate you qualify for depends on your financial situation, the type of loan you choose, the home you’re buying and, in some cases, how the purchase contract is structured.

That’s why I wouldn’t make a decision about whether to buy a home based solely on the mortgage rate you see in a headline.

What Determines Your Actual Mortgage Rate?

When you see a mortgage rate advertised online, it’s usually based on a specific set of assumptions. Your circumstances may be very different.

A lender will look at several factors when determining the rate and loan programs available to you.

Your Credit Score

Your credit score can have a significant impact on your mortgage rate.

Generally, borrowers with stronger credit histories may qualify for more favorable rates and loan terms. Your payment history, outstanding balances, available credit and length of credit history can all play a part.

And sometimes there are things a buyer can do to improve their credit profile before applying for a mortgage. That’s one more reason I like buyers to talk with a lender early in the process rather than waiting until they find a house.

Your Debt-to-Income Ratio

Lenders also look at your debt-to-income ratio, commonly called DTI.

This compares your monthly debt obligations with your gross monthly income and helps the lender determine how comfortably you may be able to handle the proposed mortgage payment.

Your Down Payment

How much you put down can affect your financing options.

A larger down payment may reduce the amount you need to borrow and change your loan-to-value ratio. Depending on the loan program and your overall financial situation, that may also affect your interest rate, mortgage insurance and monthly payment.

But putting the largest amount possible down isn't automatically the right answer for everyone. Keeping adequate cash reserves can be important too.

That’s a conversation worth having with your lender.

The Type of Mortgage

Not every mortgage carries the same rate.

Conventional, FHA, VA, jumbo and other loan programs can have different rates, costs and qualification requirements. You may also have choices regarding the length of the loan and whether you pay points upfront to obtain a lower rate.

A good lender can compare those options instead of simply quoting you one number.

The Purchase Contract Can Make a Difference Too

This is an area buyers sometimes overlook.

The price of the home isn't the only thing that can be negotiated. Depending on the property, seller motivation and current market conditions, we may be able to structure an offer that helps with your financing costs.

Seller Concessions

In some transactions, a seller may agree to contribute toward a buyer's allowable closing costs.

Rather than simply negotiating the lowest possible purchase price, there are situations where negotiating a seller concession can make more sense for the buyer.

That money might be used toward closing costs or other lender-approved expenses, depending on the loan program.

Mortgage Rate Buydowns

Seller concessions may also provide an opportunity to help reduce your mortgage rate through an approved rate buydown.

This can be especially worth exploring when a seller is motivated.

For example, a buyer may automatically think:

“Let's offer $10,000 less.”

But depending on the financing, it may be worth comparing that with:

“What happens if we pay closer to the asking price and negotiate $10,000 toward my closing costs or rate buydown instead?”

Those two approaches can have very different effects on your cash required at closing and your monthly payment.

There isn't one strategy that's right for every buyer. The important thing is to run the numbers before deciding.

Start With a Good Pre-Approval

If you're seriously considering buying a home, I recommend getting pre-approved before you begin looking.

There is an important difference between being pre-qualified and pre-approved.

A pre-qualification is generally an initial estimate based largely on information you provide.

A pre-approval usually involves the lender taking a closer look at your income, assets, credit and other financial information.

That gives you a much better idea of what you can comfortably afford and what your financing may actually look like.

It also allows us to shop for homes with a realistic price range in mind.

Ask Your Lender More Than “What's the Rate?”

Mortgage rates are important, but I wouldn't stop with that question.

I'd also ask:

  • What rate and loan programs do I personally qualify for?

  • What would my total monthly payment be at several different purchase prices?

  • How would a larger or smaller down payment affect my payment?

  • Would paying points to lower my rate make financial sense?

  • Could a seller-paid rate buydown benefit me?

  • How much would I need for closing costs and cash reserves?

  • What happens to my payment if rates move up or down?

  • What would waiting 3, 6 or 12 months potentially change?

Those answers give you much more useful information than simply knowing today's advertised mortgage rate.

Don't Let a Headline Make the Decision for You

I've been in real estate for a long time, and one thing I've learned is that it's very difficult to perfectly time either the housing market or mortgage rates.

Rates can change. Home prices can change. Inventory can change. And your own circumstances can change.

Instead of asking, “Is this the perfect time to buy?” I think the better question is:

“Does buying the right home today make sense for me financially?”

For some buyers, the answer will be yes.

For others, waiting may make more sense.

But you can't really answer that question based on a mortgage rate you saw online.

Bottom Line

If you're considering buying a home in Parker, Castle Rock, Franktown, Elizabeth, Centennial, Aurora, Highlands Ranch or the surrounding Denver area, don't automatically assume the mortgage rate you see in the news is the rate you'll have to pay.

Your actual rate depends on you, your financing and, potentially, how we structure the purchase.

Start by talking with a knowledgeable mortgage lender and getting properly pre-approved. Then we can look at the entire picture — purchase price, monthly payment, seller concessions, rate-buydown opportunities and negotiating strategy.

That's when you can make an informed decision about whether buying now makes sense for you.

And that's a much better way to approach buying a home than letting a headline make the decision for you.