Buying a house is an adventure most people aren’t ready to set foot on. According to research, 39% percent of all Americans (99.3 million people) intend to purchase a home in the next couple of years. If you’re one of these people, you may be seeking approval for a low mortgage rate.
However, you’ll have to consider some essential factors to get there. A home’s mortgage depends on a few critical factors. Paying attention to these intricacies can dramatically impact the amount you spend.
Here’s how you can find a low mortgage rate for your home.
Boost Your Credit Score
A lower credit score won’t stop you from getting a loan for a home. However, it can be the difference between getting an affordable rate or being hit with a hefty mortgage with challenging terms. The lender will use your credit score to determine your ability to pay back the loan. The higher your score is, the higher the chances are of you paying back the loan on time.
A high credit score also means you’ll get the lowest interest rate. To improve your score, pay off your bills on time, and ensure you don’t have any pending credit card balances. If you have to carry a balance, ensure it’s no more than 20 or 30 percent of your card’s limit. Moreover, develop a habit of checking your score regularly to spot mistakes in your credit report.
If you find an error, clean it up before applying for a mortgage.
Save for a Decent Down Payment
A 20 percent down payment isn’t necessary for a mortgage loan, but in a case like this, the more you pay, the better. A bigger down payment will decrease the mortgage loan-to-value (LTV) ratio (the amount of the loan left for you to pay off). A loan with a smaller LTV ratio usually has a reduced interest rate since the lender takes on reduced risk. The general principle loans operate on.
High risk for the lender: High interest rate
Low risk for the lender: Low interest rate
Apart from getting you a low-interest rate, a bigger down payment will also help you avoid mortgage insurance, which protects the lender and adds a monthly cost to your property purchase. This cost can vary between $30 to $70 a month, according to experts.
Shop Around for the Loan
Look for a loan from different lenders, mortgage brokers, and several banks. Visit their websites, fill out the preliminary forms they’ve posted and get an estimate for the mortgage loan you can expect. You can also call them and get an estimate quickly from the representative you talk to. You can also check out Bankrate to compare different mortgages and look for the best deal. If you find a quote you think can lead to an offer, you’ll have to give the lender your Social Security Number.
That said, before you start looking for different lenders, decide the kind of home you’re looking for and the mortgage type you want. Have you just started shopping for a home? Have you signed a contract, or are you looking for an offer?
Once you start filling out different applications for loans, you’ll have to verify several details of your personal and financial life. Ensure that this process phases out smoothly and you have all essential paperwork in hand.
Consider the Closing Costs
The closing cost is charged by third parties or by the lender. The closing cost won’t affect the mortgage rate (unless discount points apply). However, they will have an impact on the pocketbook. The closing cost can usually be 3% of the price of your home and is always paid when you’re closing or finalizing the deal.
This cost has several different fees involved, including the processing charges, lender’s underwriting, appraisal fees, title insurance, and a few others. You can look around for less costly options.
Build an Employment Record
Your profile to a lender can seem more attractive if you can show them two or three years of steady earnings and employment, particularly if it’s from the same employer. You may have to show pay stubs from a month before applying for a mortgage. If you earned commissions or bonuses, you’d have to show that, too.
However, it can be difficult to qualify if you’re self-employed or earning your salary from several jobs – but it’s not impossible. If you have a business, you’ll have to conjure records from your business, tax returns, and profit and loss statements to complete your application.
But what if you’ve just started your career or have re-joined the workforce after some time off?
Well, a lender can verify the job offer you’ve received from different sources to ensure they’ll be paid the money they’re lending you. This will also apply if you’re employed but are switching to a new job soon. A lender may also flag your application if you’re switching to a different industry, so remember this if you think of making a jump.
While the gaps in your employment history won’t necessarily disqualify you from getting a loan, the length of those gaps also matters. If you’ve been unemployed for a short while because of a medical complication, the lender will most probably understand. But if you’ve been unemployed for a long time (more than six months), it may be tough getting approval.
Finally: Remember to Lock It In
Once you’ve secured a low mortgage rate for your home, you’ll have to lock that rate with the lender. This will ensure that the rate won’t change before the loan ends, even if the market rates differ during that time.
But beware: at times, locking a rate can cost you extra money (specifically when you’re locking the rate for a longer time). In a financial climate where the rate is rising, the added fee may be worth it. However, you should talk to your mortgage broker before choosing this option. Listen to what they have to say, and remember the information we’ve listed above; finding an affordable mortgage rate shouldn’t be too difficult.
