By Jeff Younger — Borrow Smart Mortgage Services

Mortgage rates are always changing — and in 2025, South Dakota homebuyers are keeping a close eye on where they’re headed.
If you’re planning to buy or refinance, understanding what affects your mortgage rate can help you make smarter financial decisions and save thousands over the life of your loan.

As a local mortgage broker in Sioux Falls, I’ll break down what drives today’s rates, why they fluctuate, and how you can lock in the best deal.

1. The Federal Reserve’s Policy Decisions

The Federal Reserve (the Fed) doesn’t set mortgage rates directly, but its actions strongly influence them.
When the Fed raises or lowers the federal funds rate to control inflation, mortgage lenders typically adjust their rates accordingly.

Tip: Even a small change in the Fed’s policy can shift mortgage rates by a quarter percent or more — which can impact your buying power significantly.

2. Inflation and the Broader Economy

When inflation rises, lenders charge higher rates to protect against the loss of purchasing power over time.
In 2025, economists expect moderate inflation, meaning rates could stabilize or slightly decrease compared to last year.

If inflation slows, borrowers in South Dakota may see improved opportunities to refinance or lock in lower fixed-rate loans.

3. Your Personal Credit Profile

While national trends set the tone, your individual credit score plays one of the biggest roles in determining your mortgage rate.

Here’s how it breaks down:

• Excellent credit (740+): Qualifies for the lowest rates available.

• Good credit (700–739): Competitive rates with flexible options.

• Fair or lower (below 700): Still eligible — especially with FHA or SDHDA-backed loans — but may have slightly higher rates.

If your credit isn’t where you’d like it to be, don’t worry — there are local programs to help you prepare for homeownership.

4. Loan Type and Term

The type of mortgage you choose also affects your rate.

For example:

• Conventional loans often have slightly lower rates but stricter requirements.

• FHA loans offer more flexibility with credit and down payment.

• VA and USDA loans provide competitive rates for eligible borrowers.

In addition, shorter loan terms (like 15 years) usually come with lower rates than 30-year terms because they carry less risk for lenders.

5. Down Payment and Loan-to-Value Ratio (LTV)

Lenders look at how much equity you have in the property.
A larger down payment reduces the loan-to-value ratio, which lowers the lender’s risk — and your interest rate.

Putting 20% down is ideal, but with programs like SDHDA’s First-Time Homebuyer or HAP assistance, you can qualify with far less while still getting competitive terms.

6. Local Market Conditions in Sioux Falls

Mortgage rates can vary from one region to another.
Sioux Falls continues to experience a steady housing market with healthy demand and stable values, which helps keep rates competitive among local lenders and credit unions.

Working with a local mortgage expert gives you access to real-time rate comparisons — something big online lenders can’t always match.

7. Timing and Rate Locks

Mortgage rates can change daily, even hourly. Once you’ve found the right home and loan, consider a rate lock to secure your interest rate for a set period (usually 30–60 days).

This protects you from sudden market swings while your loan is being processed.

How to Get the Best Rate in 2025

1. Improve your credit score and pay down high-interest debts.

2. Save for a larger down payment if possible.

3. Shop around with a local Sioux Falls broker (not just big banks).

4. Ask about SDHDA or special state loan programs.

5. Consider refinancing if rates drop later in the year.

Final Thoughts

Understanding how mortgage rates work gives you the power to make smarter decisions.
Whether you’re buying your first home, upgrading, or refinancing, I’ll help you navigate today’s market to find the best loan options available in Sioux Falls and across South Dakota.

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