Get the best mortgage rates by following these 5 steps
There’s no denying the coronavirus pandemic has had a profound impact on the economy, including mortgage rates. A series of emergency rate cuts by the Federal Reserve has dropped mortgage and refinance interest rates to near historic lows, which has led homebuyers and homeowners alike to do their best to take advantage of these rate trends while they last.
If you’ve been wondering how you can save with current mortgage rates, read on below. Here are five ways to ensure you’re getting the lowest mortgage rate possible to meet your financial goals.
Shop, shop, shop
Not all mortgage rates and refi rates are created equal. In fact, the mortgage and refinance rate you’re given can vary from day to day and from lender to lender. That’s why everyone who’s thinking of buying a home or doing a home refinance should shop around to ensure they’re receiving the best rate available.
However, shopping around doesn’t have to mean spending all day driving around to different mortgage lenders. These days, online tools like Credible can help you compare rates from different vendors quickly and easily, all from the comfort of your own home.
If you're looking to refinance, you can compare lenders and save on interest by filling out your information here.
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If you're a first-time homeowner or looking for a second home, you should use an online mortgage calculator to customize your costs. To work toward closing on your dream home, then you'll want to find a cost-saving mortgage. You can also insert what you're looking for below and find the perfect mortgage loan type for you.
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Get your credit in order
The strength of your credit card history is another factor that plays into the interest rate you’re given by each lender. Typically, those with the best credit scores can expect to receive the best rates.
For example, based on the current interest rates at the time of publication, a homebuyer with excellent credit (a score of 740+) could get a 30-year fixed-rate loan at an interest rate of 3.25 percent. Meanwhile, a borrower with a good credit score (720-739) could expect to see a rate of 3.38 percent.
Find out what kind of mortgage rates you qualify for within three minutes through Credible's free online tool.
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Build up your down payment
For buyers, another way to lower the interest rate you’re given is to take the time to build up your savings account so you have a large down payment. Mortgage lenders usually offer lower mortgage rates to those who have a lower loan-to-value ratio, or who are borrowing less money overall. After all, the less money they lend you in a home loan, the lower the risk of not being repaid.
To that end, you can expect to see a lower interest rate if you’re prepared to come to the closing table with a down payment of 20 percent or more.
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Consider a different loan term
Another way for you to lower your interest rate is to choose a different loan term. While taking out a 30-year loan might be considered standard, it is far from the only option. Depending on what your lender offers, you might be able to choose from a 20-year, 15-year, or even a 10-year option.
Keep in mind the shorter your loan term is, the higher your monthly mortgage payment will be. With that in mind, you should talk to your lender to ensure you can handle the monthly payment before committing to any loan. However, if you feel okay making a higher monthly payment, a shorter loan term is definitely something to consider when purchasing or refinancing your house.
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Solidify your income
The last thing that lenders check before determining your mortgage rate is your income and employment history. Put simply, lenders look at your work history over the last two years to get a sense of your income stability. If you have a spotty work history or have been recently unemployed, that may not disqualify you from getting a loan entirely, but you may be charged higher than the average rates.
The bottom line
With all that said, if you’re wondering who gets the absolute best interest rates available, it’s a homebuyer or homeowner who meets the following qualifications: has a credit score of 740+, can put at least 20 percent down, can handle a higher monthly payment in exchange for a shorter loan term, has a solid work history, and made sure to shop around for the best rate.
Based on all the information above, if you think you’re ready to shop around for your interest rate, consider using Credible to help you easily compare rates from the comfort of your own home.