Tips to Get The Best Mortgage Rate
Do you want to know how to get the best mortgage rate for an upcoming home purchase?
Getting the best rate on your mortgage is a significant concern for any home buyer. Everyone wants to get the lowest mortgage interest rate possible!
When you consider that only a few percentage points can cost you thousands over the life of a loan, it only makes sense to seek the best mortgage rate you can get.
Buying a home is already going to cost you lots of money. There is no reason to pay more than you have to.
Unfortunately, many homebuyers do not take the necessary steps to get the best mortgage terms possible.
When purchasing a house, one must understand how to get a mortgage. Being prepared offers significant advantages.
Being completely comfortable with your finances is one of the keys to being smart.
Let’s dive into how to get the best mortgage rates and terms.
Ways to Get The Lowest Interest Rate
Let’s look in-depth at how to get the best home loan terms. Here is what we will cover in this article:
- Shopping mortgage lenders
- Increasing your credit score
- Disclose past credit issues
- Strive for steady employment
- Make a sizeable down payment
- Use a mortgage broker
- Try a credit union
- Consider paying points
- Use an adjustable-rate mortgage
- Get a Good Faith Estimate
- Don’t have several credit checks
- Lock your mortgage
- Avoid credit mistakes
Comparison Shop Lenders For The Best Mortgage Rates
Depending on where you are financially and how many loans you have taken out before, you may be unaware of just how much the variation in loan rates from one lender to another lender will affect what you wind up paying.
Particularly for people who are buying their first home, it can be tempting just to grab any loan you can get your hands on and feel lucky for the money. But this is not a good idea.
Even if a home loan only varies by a fraction of a point, you could wind up paying $10,000 or more in additional interest – depending on the amount borrowed and how long you take to pay it back.
Ten thousand dollars is enough to make even well-off individuals pause. Take the time to shop for your loan to avoid paying a lot more.
Work on Increasing Your Credit Score
Perfecting your credit is a must. One of the most critical factors in getting the best rate on a mortgage is your existing credit.
Today, most people understand that their credit score is the single biggest factor in the loan rate they’ll receive from the lender.
However, not everyone realizes just how important it is to repair their credit score before taking out a loan.
What more people should learn is how to increase their credit score! A few extra points could save you thousands of dollars over the life of your loan.
Fixing your credit can take time, but it is time well spent. Get your credit reports, challenge any incorrect information on them and then go through the sometimes lengthy process of cleaning up your debts and collections.
You want your credit cards paid down or off before you attempt to borrow – at least if you want to get the best possible rate. Having an exceptional credit score is one of the ways you can get the best mortgage rate.
If you are unsure about what credit decisions are best, use Credit Karma. It is a free service that provides excellent financial advice.
Be Upfront With The Lender About Past Credit Issues
Being upfront with your lender is crucial. If you are in a situation where some dings in your credit history cannot be easily repaired, try to be upfront with your lender about them.
After the problems in the 2000s with the real estate market and lending practices, all lenders are on high alert for any issues with borrowers. They will go through your information with a fine-toothed comb to ensure they are safe in their lending practices.
It’s better to notify them now about issues than to be caught lying – and possibly lose out on your chances of getting the loan. Honesty has an additional benefit.
The loan officer is there to help you get a loan. They will often do a lot to see that happen. Letting the lender know now about issues will allow the loan officer to advise and work with you to fix any major problems to get the loan.
If you are buying a home, your lender will issue what is called a pre-approval letter. The last thing you want to do is get caught in a position where you have exaggerated your finances. This could cause you to lose out on your potential dream home!
Work on Having Steady Employment
Individuals who demonstrate at least two years of steady employment and earnings, particularly from the same employer, may be more appealing to potential lenders.
When applying for a mortgage, applicants should prepare to provide pay stubs from the 30-day period before application and W-2 forms from the previous two years. Additionally, those who receive bonuses or commissions should have proof of receipt available.
Self-employed individuals and those with multiple sources of part-time income may have a more challenging time qualifying for a loan; however, it is not impossible.
To successfully complete the application process, applicants may need to provide proof of their business operations, such as Profit & Loss (P&L) statements and tax returns.
When making a career switch to a new industry, lenders should be noted to be more likely to flag the loan application. As such, it is essential to be mindful of such changes when in the process of applying for financing.
A lack of steady employment may not automatically disqualify an individual from obtaining a loan, yet the gaps’ duration will be considered. For example, if a person has been unemployed for a brief period due to illness, they may be able to explain the lapse in their work history to their lender.
For individuals who have been without employment for more than six months, securing approval can be a challenging endeavor.
A Significant Down Payment Helps Get The Best Mortgage Rate
Pay as much down as you can. One thing has not changed about lenders – they still love a big house down payment. Before buying a home, try to come up with as much money as possible to put down on it.
A more significant down payment will make you look favorable to the lender and improve your mortgage.
The less money you have to borrow – and therefore pay interest on – the less you will pay in interest. And interest can be a killer on a big home loan paid off over 30 years.
The average down payment for a first-time borrower is six percent.
Down Payment Gift Money Can Help
If you can only come up with some much cash on your own, consider asking family members or friends for help. If they are in a position to assist you with the down payment money, most lenders will accept such money as long as it is accompanied by a letter demonstrating that it is, in fact, a gift.
Use a down payment gift letter to demonstrate the money is coming from viable sources.
As long as you don’t have to repay the money, the lender will view it as an improvement to the loan. If you can get to a 20 percent down payment, by all means, do so!
By putting down at least 20 percent, you avoid private mortgage insurance, or PMI for short. This type of insurance protects the lender in the event of default on the loan by a borrower.
It is money that you are mostly throwing away every month as it does nothing for you. If you cannot come up with the 20 percent needed to avoid PMI, you should do whatever you can to eliminate it as soon as possible.
Use a Mortgage Broker to Get The Mortgage Rate That’s Best
Using a mortgage broker could be your best bet to get the most attractive interest rate. Over the many years of selling real estate, quite a few of my clients have asked me why they should use a mortgage broker.
My answer is simple – a mortgage broker can get financing from different sources they have built relationships. Since they have many sources they can turn to, the odds are better; they can find a better deal for you than if you went shopping on your own.
For example, let’s say you are looking to take out a loan for $250,000. You prefer a fixed-rate over thirty years and don’t want to pay any points or closing costs.
When walking into the local lender and getting their rates and terms, these may not be the best you can get. You have limited yourself to getting the best deal by just visiting one financial establishment.
A mortgage broker will take your desire for a 30-year fixed rate with no points and closing costs and shop it around to numerous lenders. This really can be a win-win for you!
Consider a Credit Union
In some circumstances, a credit union could make sense. Many banks are willing to lend money to home buyers. Unfortunately, not all of them will give you a good deal.
Some will offer you a bad deal, so keep your guard up when shopping around for a mortgage. Many people discover that their local credit union has better lending policies for its members than regular commercial banks.
The credit union is owned by the members and therefore has the incentive to take care of those members. This means you might be able to get a better loan with your credit union.
Granted, this is not always the case. But it certainly doesn’t hurt to shop around with credit unions and banks before deciding on a mortgage.
Paying Points Will Give Your a Lower Mortgage Rate
Should you pay points to get a premium mortgage rate?
Sometimes, it makes sense to pay points, and sometimes it does not. For those that don’t know, a point is one percent of the amount you are mortgaging.
So, if you are mortgaging $250,000, one point would equal $2500. What paying points do is buy down your loan rate. The more points you generally pay, the lower rate you will get.
The way to determine whether it makes sense to pay points or not is by projecting how long you will remain in the home.
You need to understand the difference in mortgage payments between paying points and not paying points. There will be a certain period whereby the difference will be made up by how long you remain at the property.
The longer you stay in a home, the better off you will be by paying points. However, one exception could be if rates drop by a large margin and you find yourself refinancing immediately.
When getting the best mortgage rate, the points you pay will have a significant bearing.
Should You Get a Fixed or Adjustable Rate Mortgage?
Does a Fixed or adjustable rate mortgage make the most sense?
Whether or not you should go with a fixed or adjustable rate again comes down to timing. If you only plan on being in the home for a short period and adjustable rates are significantly lower than a fixed rate, it could be a good idea to go that route. Only you can decide.
Sometimes if there is not that big a spread, it might not be worth the gamble, especially if rates rise and your plans change. Typically, you can get a lower interest rate when you choose an adjustable-rate mortgage.
Look at All Your Mortgage Program Options
You may need to step outside your comfort zone to achieve the best mortgage rate. Most borrowers think about getting a conventional loan.
There are, however, many other loan programs for first-time buyers. Some of the more popular loan programs include FHA mortgages, VA, and USDA loans.
If you qualify for these mortgage programs, you may be able to get better loan terms.
Get a Good Faith Estimate When Shopping For Home Loans
Get a good faith estimate in an excellent idea. Mortgage lenders are now required to give you what is called a “good faith estimate” of all the costs associated with your loan.
A good faith estimate will help intelligently compare apples to apples with the loan terms you are considering.
For example, while one lender may have a 1/4 percent better rate, what if the costs they are charging associated with the loan are significantly higher?
While you may think the loan with a 1/4 percent rate is the winner, it may not be! It is crucial to scrutinize all fees and buyer closing costs with a fine-tooth comb.
Don’t Have Too Many Credit Checks
Limit your mortgage shopping to a two-week period. Your credit score can only weather so many credit inquiries before it begins to drop.
If you keep shopping for mortgages beyond the 14-day period, it could lower your credit score – the last thing you need when you want to get the best possible mortgage. Search carefully and compare all your options, but avoid doing so for too long.
Lock Your Mortgage Rate Before It Rises
It is essential to lock your rate when appropriate. One of the things a good mortgage broker or lender can do for you gives you their best guess on where interest rates are headed.
If the trend is moving downward, it may make sense to hold off on locking your mortgage rate. If that is not the case and interest rates are trending upward, ensure you lock your rate!
Over the years, I have seen people needlessly gamble for as little as a 1/8 of a point. There are times when gambling like this does not make sense, especially if your finances are tight. You could easily cost yourself getting the best mortgage interest rate by being a gambler.
Avoid Mortgage Mistakes Before Closing on Your House
Once you have your mortgage commitment letter, don’t think you are out of the woods before closing on your home. Some borrowers have made some mortgage mistakes that have cost them the ability to get a loan.
Following the advice above, you should put yourself in the best position to get the lowest mortgage interest rate.
Final Thoughts
Striving for the best mortgage terms is an intelligent thing to do. It will allow you to pay off your mortgage quicker, saving years of mortgage interest.
Hopefully, you have enjoyed these tips on how to make it happen.
More Helpful Articles on Getting The Best Mortgage
- How to shop for the best mortgage rate – get some helpful advice on how to go get the best mortgage rate. Shopping for different lenders is an excellent move when buying a house. You will be more apt to find the best mortgage rate when you speak with multiple lending institutions.
- The best ways to get the lowest mortgage refinance rates – see more tips on getting the best mortgage terms from lenders.
Use these additional helpful resources to get the best terms and conditions on your next mortgage. Remember that getting the best mortgage rate could save you thousands of dollars!
About the Author: The above Real Estate information on how to get the best mortgage rate was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 36+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate Sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton, and Uxbridge MA.
Meg Lund says
I thought that your advice to be upfront with your lender about your credit history and any problems there really stood out to me. I would have thought that being upfront with issues you might have could possibly have a negative effect. You talk about how letting the lender know about any major problems will allow them to give you advice on your situation. This makes perfect sense. I think that this would be super beneficial because you can effectively work on your financial issues. Getting the best mortgage rates is important to most people. Thank you for the insight!
Natalie Darcy says
I agree that comparing lenders can help you to make sure that you are getting the best mortgage rates possible. This type of thing can be so confusing and it is hard to feel confident when your making decisions. I appreciate your helpful tips and information to ease the minds of homeowners like this. Thank you for your article, I will be keeping this in mind!
Bill Gassett says
Natalie you are right. Getting the best mortgage rates possible is a confusing topic because there are so many programs out there and buyers sometimes have problems factoring in the costs they are paying which can dramatically impact what they are really getting!
Catherine says
These are great tips on getting the best mortgage. Thanks for sharing an informative and updated article. I am sure a lot of aspirants will like this.
Ridley Fitzgerald says
I love your tips for getting a good mortgage loan. Like you said, credit is a huge factor for getting a good mortgage. If a few extra points could save me thousands on a loan, I need to start repairing my score!
Ally Day says
Great work. I really appreciate the insight here in this post and confident it’s going to be helpful to me and many others. Thanks for sharing all the information and tips.
Sarah Smith says
My sister is buying a house, and I’m trying to help her get a good mortgage rate. I appreciate the information about how you should compare lenders so that you can get the best rate. Another thing to consider is to get a company to help you that you trust and know is easy to contact is something happens.
Tiffany Locke says
Having a good mortgage broker or lender who is able to give you their best guess on where interest rates are headed is a good idea. Being able to see where the trend is moving is a great way to prepare for the future.
Karetha says
Great article, I’ve been cleared on some questions I’ve always had questions about.
Thank you