Getting the Lowest Mortgage Rates – A Guide for the Shrewd

Although mortgage rates are usually lower than other loan rates, not everybody will qualify for those reduced rates. That said, this article serves as a perfect guide on how to acquire the best mortgage rates. Our mission is to provide you with the resources and knowledge you need to better your financial situation and buy your dream home.

Normally, mortgage rates are determined by several factors. These include your credit rating, loan amount, mortgage product, property location, and more. In addition, mortgage rates differ from one lender to the other.

This is because different lending institutions follow different policies and rules. Therefore, borrowers with the same credit ratings can qualify for different mortgage rates and amounts. Now, let’s look at how you can qualify for low-rate mortgages.

mortgage rates

Ways to Qualify for Low Mortgage Rates

1. Work on Improving Your Credit Score.

The two most essential factors to consider when looking for the best rate are undoubtedly your credit score and your loan-to-value ratio. 

Consequently, one of the most effective ways to lower your interest rate is to increase your credit score. More importantly, it will improve the chances of the bank approving your mortgage loan.

Surprisingly, even a tiny increase in your credit rating can make a significant difference. For example, if you look at FICO’s most recent rate statistics, you’ll understand how the credit score works. It is possible to save more than 0.60 percent on your loan rate if you improve your credit score from 659 to 680.

How Do You Raise Your Credit Score To Get A Lower Mortgage Rate?

Here are a few simple techniques to raise your credit score:

  • Look at your credit score and report any mistakes to the credit bureau.
  • Make yourself a legitimate user on someone else’s account.
  • Request an increase in your credit limit (but don’t use any of it).
  • Obtain a secured card or a credit-builder loan if you don’t already have too many loans

2. Have Enough Money Saved for a Down Payment

Usually, your down payment has a direct effect on your loan-to-value ratio, which is critical while looking for the best rate. Increasing your down payment is another fantastic way to get a better interest rate.

Sometimes, you may be lucky enough to get away with a lower deposit. However, you must always aim to save at least 20% of the property’s cost as a deposit. This is because the more money you put down, the less your creditor has to lend you, and the lower the risk you face. As a result, if you’re a fairly low-risk borrower, you’ll likely earn cheaper interest rates.

However, don’t deplete all your savings trying to make a greater down payment. This is because you’ll also have to pay closing costs. These typically range from 2% to 5% of the overall loan amount. In addition, lenders prefer to see two months’ worth of mortgage payments in your account at all times.

3. Increase your Income Amount or Work on Making It Constant

Work at keeping your income and employment stable before applying for your loan. That way, you will appear to be a safe bet to your lender. Just make sure you don’t switch jobs or quit your current one too soon before applying for a mortgage.

Most lenders prefer to see that you’ve been with the same company for at least two years. In addition, it’s much better if you can boost your salary in the months leading up to your loan application. Even a small amount of extra cash from a side hustle or part-time work can go a long way.

4. Think About Getting An Adjustable-Rate Mortgage (ARM) Or A 15-Year Mortgage.

Lenders prefer to take fewer risks by issuing shorter-term loans since they can re-scoop their money faster. As a result, the rates on your mortgage could be significantly cheaper if you choose an ARM or a 15-year mortgage over a 30-year mortgage. However, please remember that a short to medium-term loan will have a larger monthly payment. In addition, ARM will have the danger of interest rates rising over the loan duration.

Take a look at this example to see what I mean: As per the Mortgage Bankers Association, rates on 30 year fixed mortgage loans were 3.71 percent in January 2020. On the other hand, the rate on 15-year loans was 3.19 percent while ARM rates were also low, at 3.23 percent.

That said, which Is Better? A 15-Year or 30-Year Mortgage? It all depends on the rates at the time of your borrowing as well as many other factors. 

5. Use First Time Home Buyer Programs

Luckily, many municipalities and states have first-time homebuyer programs in place to encourage people to buy homes in their communities. Some of these are minimal mortgage loans, while some are grants that can assist with closing costs or a down payment. In either case, they can make a substantial difference in terms of affordability.

6. Use Paying Points to Get Better Rates.

If you are on a more flexible budget, you can pay your lender discount points, which can qualify you for a lower interest rate. Loan experts refer to this as “Buying down your rate.” However, before you implement this strategy, make sure that it suits your long-term goals.

For example, you’ll want to stay in the house long enough just to break even, or else it will not be worth it. The level at which the benefits from your reduced interest rate exceed the expense of your points is known as the breakeven point.

Pro tip: Using a loan point’s calculator might assist you in determining your loan’s likely breakeven point.

7. Compare Different Lenders

Getting quotations from different lenders is the secret to obtaining the best mortgage rate. Rates vary greatly from one creditor to the next. Therefore, it’s critical to evaluate at least a couple before making a decision. Hopefully, you now know how to get the best mortgage rates in the market. Simply follow our simple tips and buy your dream home.