When buying a new home, the best way to ensure you get the best mortgage deal is to shop around for the best interest rates. Rates can vary significantly from one lender to another, so comparing them before settling on a loan is essential. In this article, we will discuss tips on qualifying for the best mortgage rate and saving money in the process!
Before you even start looking for the home of your dreams, and definitely before you get involved in the real estate bidding process, you should first consider getting yourself pre-qualified for a mortgage.
A mortgage is a loan that is used to purchase a home. It is usually obtained from a bank or other financial institution, and the loan amount is based on the house’s value. The mortgage will have to be repaid over time, usually somewhere between 20 to 30 years.
Although it would be nice to simply walk up and buy a house with cash, with today’s housing prices, that is rarely an option, particularly for first-time home buyers.
But first-time home buyers are also the ones who are usually a bit less savvy when it comes to negotiating the best interest rates, so we’ve put together a list of tips to help you get the best mortgage for your home.
8 Questions You Should Ask Before Getting a Mortgage
When picking the right mortgage, there are a few things to remember. One of the most important is the interest rate. This is what you will pay on the loan each month, so it’s crucial to get the best rate. Another thing to consider is the term of the mortgage. The longer the term, the lower the monthly payments will be, but you will also pay more interest over time.
There are other factors to consider, such as whether or not you want a fixed or variable interest rate and if you want to include any extra features like private mortgage insurance (PMI) or an adjustable-rate mortgage (ARM).
So how do you get the right mortgage for you and your family? Here are a few important questions you should ask yourself before you go mortgage hunting.
- How much can I afford?
- How comfortable am I with the possibility of interest rates going up or down?
- What are the best mortgage lenders?
- What are the best interest rates available?
- What is the minimum down payment required?
- What is the maximum mortgage amount I can qualify for?
- What is the term of the loan, and how does that affect my monthly payments?
- Are there any prepayment penalties associated with this mortgage?
7 Tips For Securing The Best Mortgage Interest Rate Possible
There are a lot of factors that go into determining the interest rate attached to a specific mortgage. Here are eleven tips to help you get the best interest rate possible.
Check Your Credit Score
The first tip is to ensure your credit score is as high as possible. Lenders will use your credit score to determine the interest rate you qualify for, so the higher your score, the lower your rate will be. You can get a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once per year at AnnualCreditReport.com. Check for any errors on your report and dispute them if necessary.
Your credit score is one of the most important factors in getting a mortgage. The higher your score, the lower your interest rate will be. Most lenders require a minimum credit score of 620 or higher to qualify for a mortgage.
8 Tips to Improve Your Credit Score
You can do a few things to help improve your credit score.
- First, make sure you pay all of your bills on time. This includes your mortgage payments and other debts like credit cards and student loans.
- Second, keep your balances low. Lenders like to see that you use less than 30% of your available credit. So if you have a credit card with a $1000 limit, try to keep the balance below $300.
- Third, don’t open too many new accounts at once. When you open a new account, it can lower your average account age, which is one of the factors that make up your credit score. So if you’re planning on applying for a mortgage, it’s best to wait a few months after opening any new lines of credit.
- Fourth, don’t close old accounts. Even if you’re no longer using a particular credit card, keeping the account open is best. That’s because part of your credit score is based on the length of your credit history.
- Fifth, don’t apply for too much new credit at once. Every time you use a new line of credit, it causes a hard inquiry on your report, which can temporarily lower your score. So if you’re planning on applying for a mortgage shortly, it’s best to avoid opening any new lines of credit in the months following your application.
- Sixth, use a mix of different types of credit. This can include revolving credit like credit cards and installment loans like student loans or a mortgage.
- Seventh, check your report regularly for errors and dispute any that you find.
- Eighth, consider signing up for a credit monitoring service. This can help you keep track of your score and report any changes so you can take action to improve it if necessary.
Shop Around – Within Reason
Compare rates from at least three different lenders before you make a decision. The mortgage industry can be pretty competitive, so it’s not unusual for lenders to compete for your business. But don’t shop around too much because too many inquiries on your credit history can harm your credit score.
Don’t Be Afraid To Negotiate
Banks often have posted rates, but many lending officers have the leeway to discount those rates based on your application. Some lenders will also offer discounts for autopay or signing up for paperless statements. And, if you find a better rate elsewhere, don’t be afraid to ask your current lender if they can match it or beat it.
Lock In Your Rate
If you’re happy with your interest rate, don’t wait to lock it in. Although this is not always the case, if interest rates go down between your approval date and the day you close on your new home, you will get the lower rate. Not sure if this is the case with your lender… ask!
Pay Attention To The Details
Make sure you understand your loan terms before you sign anything. Sometimes, mortgages can look like a great deal, but they come with hidden fees or prepayment restrictions that cost you in the long run.
Maximize Your Down Payment
A larger down payment can lead to a lower interest rate and monthly payments. If you can afford it, try to put down at least 20% of the purchase price of your home. If you’re still prepping for your home purchase, here are some easy tips on how to save for a down payment.
- Start a house fund and contribute to it regularly. An auto-deposit on payday is an excellent option as the money is taken from your account the same day, so you don’t risk spending it on something else.
- Stay disciplined with your spending and set aside as much money as you can each month.
- Use a budgeting app to help you stay on track.
- Look into government programs that offer assistance with down payments.
Improve Your Income / Debt Ratio
One important factor in determining your interest rate is your debt-to-income ratio (DTI). This is the percentage of your monthly income that goes towards paying debts, and lenders use it to determine how much of a mortgage you can afford. A lower DTI indicates that you have an excellent income-to-debt ratio and are a less risky borrower, which could lead to a lower interest rate on your mortgage.
Some lenders may require a DTI of 43% or less to qualify for a loan, but others may allow up to 50%. If your DTI is higher than the maximum allowed by your lender, try working on paying down some of your debt before you apply for a mortgage.
Alternatively, you can add additional sources of income, such as a part-time job.
But Remember, Don’t Take On More House Than You Can Afford
Just because a lender is willing to give you a larger loan doesn’t mean you should take it.
- Have realistic expectations – Don’t expect to get the best possible interest rate if you have poor credit or are self-employed.
- Remember that timing is everything – Interest rates can change quickly, so it’s important to lock in your rate as soon as possible.
Now that you know a few things about getting the best mortgage interest rate, you can start shopping for the right loan. Just remember to keep these tips in mind, and you’ll be on your way to saving money on your new home.
Summary and Key Takeaways
When buying a new home, it’s important to get the best mortgage interest rate possible is important. This article provides tips on how to do that, including negotiating with your lender, locking in your rate, and paying attention to the loan details. It also highlights the importance of your debt-to-income ratio in determining your interest rate.
Key takeaways:
- Getting the best mortgage interest rate when buying a new home is important.
- You can do this by negotiating with your lender, locking in your rate, and paying attention to your loan details.
- Your debt-to-income ratio is an important factor in determining your interest rate.
- Don’t take on more house than you can afford just because you’re offered a reasonable interest rate.
When shopping for a mortgage, comparing offers from multiple lenders is important to ensure you’re getting the best deal. Keep these tips in mind, and you’ll be on your way to saving money on your new home.
Do you have any other tips for getting the best mortgage interest rate? Share them in the comments below!