A Guide On Getting Great Mortgage Rates

By Alvaro Moreira
5 min read

Obtaining The Best Mortgage Rates

Even though mortgage rates are currently low, it doesn’t mean that everyone will be able to qualify. Be sure to use this guide to learn how you can get the best mortgage rate. 

If you’re thinking about ways you can access the best rates, then you should understand that this would be based on the location of the building, your credit score, the size of the loan, the mortgage product etc. Additionally, rates would differ from one lender to the next and this would apply to borrowers whose credit scores are the same. 

However, if you’re determined to get the best rates, we can definitely help. 

mortgage rates

In Order To Obtain The Best Rate You’ll Have To Do The Following:

Boost your credit score

Save a significant down payment

Improve your income or ensure it is steady

Think about a 15 year mortgage or ARM

Pay attention to any first time home buyer offers

Check different lenders

Look at various paying points

1. Boost Your Credit Score

According to Alvaro Moreira who is a mortgage expert and senior loan officer, the most important factors that influence your ability to get the best mortgage rate is the loan to value ratio and your credit score. 

So, it is essential that you work towards improving your credit score so that you can have a better interest rate. It will also improve your chances of being approved for the loan to begin with. 

Even if all you can manage is a small increase of your credit score, this can provide a significant difference. If you have a look at the FICO rate data, you will notice that if you have a credit score that is 659 and you manage to increase it to 680 then you’d be able to take off over 0.6% from your interest rate. 

In order to quickly increase your credit score, do the following:

Get your credit record and if you find any errors, make sure and let the credit bureau know asap. 

Get an increased line of credit, however, don’t actually use it. 

In the event that you don’t have much credit, then you should try getting a loan to build your credit or even getting a secured card. 

If you have a person that trusts you, then ask to become an authorized user on their account. 

2. Save A Significant Down Payment

According to Al Moreira, if you’re trying to get the best interest rate, then keep in mind that your down payment would have a very direct and heavy impact on your loan to value ratio. 

So, you should definitely increase your down payment as much as possible in order to get the best rate. It is possible to get away with having a lower down payment, but you should at a minimum be able to provide approximately 20% of the home’s value for the down payment. When you have a larger down payment, then the lender won’t need to lend you as much money for the home. This reduces the risk which will naturally lower your interest rate. 

Tip: Avoid using out all of your savings for the down payment since you need to consider other costs such as closing costs. The closing costs for your new home will be approximately 2 to 5% of the loan. Additionally, most lenders want to see a minimum of 2 months of payments in our bank account by the end of the process. 

3. Improve Your Income Or Ensure It Is Steady

In order to look like a safe bet for lenders, you should always strive to ensure your income is steady before you go for a loan. Avoid changing your job or even quitting anytime close to when you’re trying to get a mortgage. In most cases, lenders require you to be with one employer for a minimum of two years before they give you the loan. It is even better if you can increase your income in the time before your application. Even if you increase your income a little through an additional job or side gig, it can make a big difference. 

4. Think About A 15 Year Mortgage Or Arm

The good thing about 15 year mortgages is that they reduce risk for the lender since they’d be able to get back their money in a shorter space of time. So, it is a great idea to think about doing a 15 year mortgage as opposed to a 30 year mortgage. This can also help to reduce your rates. However, do remember that if you have a shorter loan term then you will have to deal with higher monthly payments. Additionally, with ARM, there is also the risk that your rate would increase during the term of the loan. 

Check current rates for more proof: In January 2020, the fixed rate loans for 30 years had a rate of 3.71%, however the rate on 15 year loans was 3.19%. The ARM interest rates were also significantly low at 3.23%.

5. Pay Attention To Any First Time Home Buyer Offers

There are lots of areas that have first time home buyer programs. These types of programs are meant to encourage home ownership. A lot of these programs offer low interest loans and there are others that assist with the down payment or closing costs. These programs can make home ownership a lot easier. 

6. Look At Various Paying Points

In the event that you have some extra cash, then you can do discount points with your lender of choice. By doing this, you will be able to get a lower rate and it is also called purchasing down your rate. So, if you want to do this, you should look at your own long term desires and plans. Ensure that it is actually worth it when you look at your break even point. Your break even point is when the savings you get from having a lower interest rate would be better than how much you paid for the points. 

7. Check Different Lenders

In order to get the best rate, you should get quotations from many different lenders. These rates will vary and you should definitely compare a couple before you make a decision on which lender you’ll work with. Make sure that you also know how much money you can realistically afford to pay every month. Be sure to utilize our mortgage payment calculator  to determine this.