5 Ways to Get a Better Mortgage Interest Rate
Unless you have a wad of cash just waiting to pay for your new home, it’s a good idea to pay close attention to mortgage interest rates when you’re ready to buy. What’s all this fuss about interest rates? Seriously, we are talking about a huge amount of money you will potentially pay over the life of your home loan. As you plan your home purchase, one of the most important factors to consider is the amount of money you will have to pay to use a lender’s money – aka, the mortgage interest rate.
Because most people don’t have a cash stash to splurge on a new home, mortgage lenders loan homebuyers money to purchase their American dreams. Like just about everything, that loan comes at a cost in the form of interest. Interest is a percentage of the mortgage amount.
Say you are purchasing a home for $250,000; that’s a significant amount of money to lend and what you pay in interest helps compensate your lender for the risk involved in taking a chance on your power to pay it back. It makes sense then that homebuyers who pose less risk, pay less interest. Lenders take into account important factors like the following:
- Credit history
- Length of loan
- Your lender
- Property location
There are some things over which you have no control. There are many things you can control. Below are five tips to ensuring the best available rate.
- Tend to your credit. Your credit history is one of the major factors taken into consideration when a lender is weighing the risks and benefits of loaning money to you. The question is very simple: When you borrow money or use credit, do you pay it back on time? It is important to pay off as many bills as possible before applying for a home loan. Your debt to income ratio is something your lender will examine carefully. Keep credit card balances at a minimum. Check your credit report regularly and correct errors immediately.
- Shop around for lenders. Interview potential lenders and ask about their competitive rates. Just as retail outlets’ prices vary, lenders offer different interest rates.
- Consider a shorter-term loan. Ask your lender about the interest rate/payment on a 15-year mortgage compared to a 30-year mortgage. You might be surprised by the difference in rates and the many thousands of dollars you can save by paying your loan off faster.
- Take advantage of promotional rates/programs. There is a wide variety of programs to meet the needs of specific borrowers. Some apply to people in specific professions; others apply to veterans, low-income families and more. Many cities and counties offer down payment assistance to encourage growth in certain areas.
- Start saving now for your down payment. Your down payment will help dictate the types of loans for which you will qualify. It is important to have your down payment in place before you apply for a loan. If your down payment is less than 20%, you will be required to purchase private mortgage insurance (PMI). While PMI is not interest, it will increase your monthly payment.
If you have questions about home loans, give me a call any time. I will be happy to walk you through the process and answer your questions about points, variable versus fixed rate mortgages and any others you might have!