A major stage in the process is purchasing a home, and determining the best mortgage rate can significantly impact your spending plan. A lower rate means smaller monthly payments and big savings over the life of your loan. But how do you get the best deal? The key is being prepared and knowing the steps before applying for a mortgage.
Here are some simple, actionable tips to help you secure the best rate on your next mortgage.
1. Know Your Credit Score and Improve It
Your credit score is one of the first things lenders check. A high score shows that you’re a responsible borrower, which can help you qualify for a lower interest rate. If your score needs a boost, start working on it now.
Steps to improve your credit score:
Aim for a score of 740 or higher to obtain the best rates, although even a slight improvement can result in cost savings.
2. Save for a Bigger Down Payment
The more you can put down, the better your mortgage rate will likely be. A higher down payment minimizes the risk for lenders by lowering the amount you must borrow.
Many people aim for a 20% down payment to avoid paying private mortgage insurance (PMI). But even if you can’t reach 20%, putting down more than the minimum required can still help you secure a better rate.
3. Shop Around and Compare Offers
Not all lenders are the same, and their rates can vary. It is crucial to obtain quotations from at least three different lenders—banks, credit unions, and internet mortgage companies.
When comparing offers, don’t just look at the interest rate. Consider other factors like:
A little more research can save you thousands of dollars throughout your loan.
4. Choose the Right Loan Term
Shorter-term loans, like a 15-year mortgage, usually have lower interest rates than the standard 30-year option. Even though your monthly payments will go up, you will pay off your loan more quickly and ultimately save money on interest.
If a shorter term fits your budget, it’s worth considering.
5. Lock In Your Rate
Mortgage rates can change daily. If you’ve found a rate you’re happy with, ask your lender about locking it in. A rate lock guarantees your quoted rate for a specific period (usually 30 to 60 days), protecting you from potential increases while you finalize your loan.
6. Keep Your Finances Steady
Avoid big financial changes, like taking on new debt or changing jobs, while applying for a mortgage. Lenders prefer borrowers with stable financial situations, so hold off on new credit cards or major purchases until your loan is approved.
Getting the best mortgage rate doesn’t have to be complicated. You can position yourself for success by raising your credit score, accumulating more money for a down payment, and evaluating offers. Your dream home can become more affordable with additional work now, saving you thousands later.
Take your time, do your homework, and make informed decisions. The right mortgage rate is out there—go get it!
