The mortgage rate that you get is very important because it makes a big difference in how much your mortgage will cost you. Over the life of your 30 year loan, you could spend tens of thousands of dollars more on your house if you take out a mortgage at a high rate of interest. The best mortgage rate will vary frequently, as rates can change on a daily basis. You also have to consider what the best rate for you will be, since how you’ve handled your money in the past will have affected your credit and how lenders see you. If you seem like a high risk for a mortgage, your rate will be higher than another person’s would be, just based on the concerns your lender has. With that in mind, here’s what you can do in order to get the best possible mortgage rate.
Evaluate your credit.
Without good credit, it’s not possible to get the best mortgage rates available. Only the buyers with the best credit, which is generally above 720 for most lenders, and sometimes considered to be above 750 or even 760, get the best rates. That doesn’t mean you can’t get a good mortgage interest rate that’s reasonable, but only that you won’t see the absolute lowest rates unless you’re a prime borrower with great credit and other factors in your favor. While it’s not just about your credit, that’s one of the most important aspects when it comes to whether you’re going to get a mortgage rate that you feel good about. Even the difference of one percentage point on your interest rate can equal thousands of dollars in savings. If your credit isn’t great, it may be worth taking some time to improve it before you apply for a mortgage.
Choose the house you want to buy.
When you buy a house, your lender makes a determination as to whether you can qualify for the mortgage and whether the house is worth what you want to borrow. They use an appraisal to determine that worthiness, and if the appraised value doesn’t come back high enough you won’t be able to get the mortgage you want. There’s more to the issue, though. The house you want comes with a price, and if the price is too high you won’t be able to make the payments. The interest rate you’re given will affect how much those payments are, so a high interest rate could price you right out of a house you would qualify for if you were able to get a lower rate.
Watch the market carefully.
Make sure you pay good attention to the market. If houses aren’t selling, sometimes the interest rates will be lowered to encourage people to buy. If you wait until a time like that, you have a chance of getting a better deal on your house and your interest rate. In a market that’s booming, it’s harder to get a good price, because the home values are higher and the interest rates often rise. If you hear that the market is improving or there’s speculation about interest rates, and you’re already planning to buy, it can help to start checking with lenders and lock in your rate so you’ll get what you need in the way of a fair rate you can be comfortable with.
Talk to several lenders.
If you’re serious about purchasing a home you want to talk to more than one lender. They aren’t all equal, and they may have some different programs and rates. Their fees may also be different. By checking with several banks, credit unions, and mortgage brokers, you can see how close their rates are, take other fees into consideration, and decide which lender you would prefer to use for your mortgage. Even if your credit isn’t perfect, you still have choices and it’s important to know what they are so you can make an informed decision.
Consider using points to lower your rate.
Some buyers elect to pay points in order to lower their rate, but not every buyer wants to do that or feels that it’s worth the extra cost at closing. When you pay points, you buy down the interest rate by paying a set fee when the loan closes. Often this fee is more than $1,000, and it won’t lower your rate that much. Some of the options are 1/8 or 1/2 of a point, depending on the price. That little bit of difference will lower your payment and the total amount you would pay over the life of the loan, but you may not find it significant enough to be worth the cost, especially with all the other closing costs you need to pay.
Evaluate if now the best time to buy.
Knowing whether now is the time for you to buy is important. You may be very anxious to own a home, but if interest rates are high it could be better to hold off for a little while. Interest rates at historic lows, however, mean it’s a good time to purchase a home if you can. Just make sure you get a fixed-rate mortgage. While you might get a lower rate initially with an adjustable or variable rate mortgage, that rate will go up over time, and you could end up with a mortgage payment that’s much higher than you anticipated.
2 Point Highlight
Without good credit, it’s not possible to get the best mortgage rates available.
Some buyers elect to pay points in order to lower their rate, but not every buyer wants to do that or feels that it’s worth the extra cost at closing.
