How to get the best mortgage rates and save thousands.
Getting the lowest possible interest rate on your mortgage can save you tens of thousands of dollars in interest costs over the life of your loan. Here are some top tips for securing the best mortgage rates and slashing your payments:
Boost your credit score
Your credit score is one of the top factors lenders use to determine your mortgage interest rate. Prior to applying for a mortgage, work on improving your score paying down debts, correcting any errors on your report, and avoiding new hard inquiries on your credit. Aim for a score of 740 or higher to qualify for the best rates.
Shop multiple lenders
Applying with several lenders, including credit unions, banks, and online lenders, allows you to compare interest rate quotes. Avoid applying serially and instead apply within a condensed timeframe so additional hard credit inquiries don’t excessively ding your score. Leverage rate comparison tools to easily view multiple offers.
Lower your debt-to-income ratio
Lenders look at your total monthly debt payments in relation to your gross monthly income. To improve this back-end DTI, consider paying down debts like credit cards and auto loans. You can also try requesting a pay raise to boost your income. A DTI below 36% often secures the best rates.
Make a larger down payment
The higher your down payment, the lower risk you are to a lender. Putting down 20% or more for a conventional loan eliminates the need for private mortgage insurance and demonstrates you can cover upfront costs. This can lead to a lower interest rate.
Choose a shorter loan term
Opting for a 15 or 20 year fixed mortgage instead of a 30 year loan will score you a lower interest rate. The tradeoff is higher monthly payments, but you pay significantly less interest over the life of the shorter term loan.
Improve your debt-to-income ratio
Lenders also look at your front-end DTI measuring your projected monthly mortgage payment in relation to your income. To improve this, consider opting for a less expensive house that won’t stretch your budget and keep your payment manageable in relation to your earnings.
Lock your rate
During the mortgage process, a lender will guarantee or “lock in” the quoted interest rate for a period of time, often 60 days. Locking in quickly shields you from fluctuating market rates during the underwriting process. There may be a small upfront fee.
By taking steps to improve your credit, control your debt, and demonstrate fiscal responsibility, you can gain leverage to lock in the lowest rates and save a substantial amount over your loan repayment period. Even a difference of half a percentage point can equate to over $60,000 in savings over 30 years.
To secure the best mortgage rates and save money, consider these tips:
Improve Your Credit Score: A higher credit score often leads to lower interest rates. Pay bills on time and reduce outstanding debt to boost your creditworthiness.
Shop Around: Compare mortgage rates from different lenders to find the most competitive offer. Online tools and mortgage brokers can assist in this process.
Increase Your Down Payment: A larger down payment can result in better rates. Aim for at least 20% to avoid private mortgage insurance (PMI) and demonstrate financial stability.
Choose the Right Loan Term: Shorter loan terms generally have lower interest rates, but higher monthly payments. Assess your financial situation to determine the most suitable term for you.
Consider Adjustable-Rate Mortgages (ARMs): If you plan to move or refinance within a few years, an ARM with a fixed period may offer lower initial rates compared to fixed-rate mortgages.
Negotiate Fees: Negotiate with lenders to reduce origination fees, closing costs, and other charges. Some fees may be negotiable, potentially saving you money upfront.
Maintain Stable Employment: Lenders prefer borrowers with a stable employment history. Consistent income can enhance your mortgage application.
Automatic Payments: Some lenders offer rate discounts for setting up automatic payments. Inquire about such options to save on interest.
Consider Points: Paying points upfront can lower your interest rate. Evaluate whether this upfront cost aligns with your long-term savings goals.
Monitor Market Trends: Keep an eye on economic trends and interest rate movements. Timing your mortgage application during a period of lower rates can result in substantial savings.
Remember, individual circumstances vary, so it’s crucial to tailor these strategies to your specific financial situation and goals.
Mortgage rates have been on a tumultuous path, rising from pandemic-era record lows to two-decade highs in just a few short years. High rates are exacerbating an already challenging market thanks to rising home prices and stubbornly high inflation. So do these..
1. Check in on your budget
One of the biggest downsides to higher mortgage rates is that they squeeze your budget—allowing you to borrow less for the same monthly payment you could have a few months ago.
.2. Improve your credit score
Interest rates vary based on your credit score. That’s because your score is supposed to be a reflection of how risky you will be as a borrower.
3. Compare several mortgage lenders
Just as rates vary credit score, they can vary widely between mortgage lenders, largely because each one has different overhead costs, capacities and appetites for risk.