Tips for Finding the Best Mortgage Rates
Buying a home is many things. It's an adventure, a move to lifetime security, and a significant financial investment. Purchasing a home will likely be the longest-term financial investment you will make and as such, it is important to do your research and find a trusted mortgage lender who can offer you a great mortgage rate before you go forward with your home buy.
In fact, setting yourself up for a great mortgage rate often requires preparing months, sometimes years, before you start researching homes. It all depends upon where you stand with certain factors that most mortgage lenders look at when determining an individual's rates. So whether you have a dream address in mind or not, now is a great time to get started with the prepwork necessary to land yourself a desirable home loan and rates. The following are some tips to help you get started as well as some general advice for finding a great home mortgage rate:
Setting Up for Success: How to Get the Best Mortgage Rate
- Improve your credit score. A person's three-digit credit score is the first and most impactful factor that mortgage lenders use to both accept and deny a person and then to determine their rate. This is because good credit scores reflect a person's ability to repay back debt and manage their debt effectively and thus mortgage lenders will typically offer the lowest rates to those with that proven track record of paying back debt. So now is the time to research your FICO credit score and start taking the necessary steps to improve it.
- Establish a stable record of employment. The second big factor used by mortgage lenders to determine rates is employment. It may be frustrating to hear, but most lenders are reticent to offer home loans to applicants who freelance for different clients or who rely on various part-time or seasonal jobs for their income. Instead, what mortgage lenders want to see is applicants who have been gainfully employed for at least two years by the same employer. This shows financial stability.
- Save up for a down payment or research alternative borrowers. If you plan on securing a mortgage from a traditional financial institution, then you will want to start saving up for a down payment. Applicants who have enough funds to put down a 20% cash down payment will often enjoy the lowest rates -- sometimes as low as .05%. But if you can't pull together that much liquid cash before signing for your home, then there are other ways of securing low-interest rates. The trick is to find specialized mortgage loans like the following:
- USDA loans. You don't have to buy a farm to qualify for a USDA loan. Due to their wanting to promote homeownership in more rural areas, the Department of Agriculture offers USDA loans that allow applicants to enjoy a low or no-down-payment mortgage with low interest rates.
- VA loan. If you or your spouse are veterans or active military personnel, then you may qualify for a no-down-payment and low-interest mortgage through a VA loan.
- FHA loan. The Federal Housing Administration caters to home buyers with low credit scores and offers loans with minimal down payment and competitive mortgage rates. However, they do require home buyers to pay for mortgage insurance for the entirety of the loan's duration.
- Go for a 15-year fixed-rate mortgage. If your household has good cash flow with stable employment, then you should consider applying for a 15-year fixed-rate mortgage. While you will pay more in monthly rates than the more typical 30-year fixed mortgage, those rates will include significantly reduced interest rates. In fact, by switching to a 15-year term from a 30-year term loan, you could save tens of thousands of dollars in interest payments.
- Lock in a great rate. If you've been shopping for a home for some time, then you already know how fast things can go from feast to famine and back again. Maybe you've already lost out on an ideal home by not moving quickly enough or you saw a friend move too quickly and overpay for their home. Finding a home mortgage loan is similar and if you are offered a great low rate, then you should pounce and lock it in. The home closing process can take months to happen and rates can really fluctuate in that term. So, as soon as you sign a home purchase agreement with a desirable loan rate, you should ask your lender to have that rate locked in. This might come with a fee, but if rates rise even .5%, that service fee will save you significantly over the loan's lifetime.
Act in the Present and Plan for the Future
No matter where you are financially, you can work towards a better interest rate today. Improve your credit score, save up that down payment, and shop around to secure your best rates!