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Buying Property in 2022? 15 Ways to Secure a Better Mortgage Rate

Author: Christy Bieber | November 17, 2021

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The mortgage interest rate you pay will make a huge impact

Mortgage loans are paid off over a long time and have a large balance. For both of those reasons, even small changes in interest rate can impact total payoff costs by thousands of dollars.

It's important to ensure you get the best possible rate on your home loan. So, if you're buying a property in 2022, start working on completing these 15 steps now to maximize the chances of getting a competitive rate.

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1. Pay down debt

Mortgage lenders look at two key numbers when deciding whether to approve you for a mortgage and setting the rate you'll pay.

The first is the ratio of debt relative to income. And the second is your credit score. Paying down debt helps you to improve both of these key numbers, so it can go a long way toward helping you to qualify for a loan at the best possible rate.

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2. Work to get negative information removed from your credit report

If you have negative information on your credit report, this will reduce your credit score and thus make it more difficult to qualify for a mortgage at a low rate.

Sometimes, this negative information is on your report by mistake. If so, you can dispute the details, and the incorrect data should be removed from your credit record.

If the black marks on your report are legitimate, you may still have options. If you've been a generally good customer, you can write a goodwill letter and ask creditors if they'd be willing to remove the negative info for you. Sometimes this is effective and can make a big difference in improving your credit.

ALSO READ: How Writing a Goodwill Letter Could Help Improve Your Credit Score

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3. Avoid opening new credit lines

If you're going to be applying for a mortgage in 2022, avoid taking on new credit until after you do.

Opening a new line of credit can affect your debt-to-income ratio adversely and can also lower your credit score. Both average age of credit and number of new accounts open impact your score and will be hurt if you take out new loans.

To get the best possible mortgage rate, wait until after you've closed on your home loan to do any new borrowing so you avoid taking a hit to the two most important metrics lenders consider in setting your rate.

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4. Ask someone with good credit to make you an authorized signer

Raising your credit score quickly can be difficult, and you're on the clock if you're hoping to get a mortgage in 2022.

One of the fastest ways to improve your credit record is to ask someone who has a good credit history to add you as an authorized user to one of their accounts in good standing.

That account will show up on your credit record, sending your score higher and helping you to qualify for a more competitive mortgage rate.

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5. Shop around for a mortgage loan

Rates can vary substantially among mortgage lenders. If you want the lowest rate, start comparing lenders before you're ready to borrow in 2022.

Most lenders allow you to get quotes without a hard inquiry on your credit that could affect your credit score.

Get quotes from three to five different mortgage providers -- or more -- to see which is willing to offer you the lowest interest rate on your loan.

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6. Consider both online and local lenders

You'll also want to assess your options from many different kinds of lenders. Don't assume your local bank will always offer you the best deal or that an online lender will always be cheaper.

Different financial institutions offer better deals to different kinds of borrowers, so compare rates from local and national banks, credit unions, and online lenders and give them all a shot to compete for your business.

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7. Choose a mortgage with a shorter payoff timeline

If your goal is to get the absolute lowest mortgage rate possible, consider a loan with a shorter payoff time.

While many borrowers default to a 30-year loan, a 20-year or 15-year will come with a lower rate since lenders take on less risk with shorter loan payoff times.

A shorter loan also makes total borrowing costs cheaper since you won't pay interest for as long. Just be aware there's an opportunity cost since the monthly payments will be much higher due to the shortened payoff schedule.

ALSO READ: 30-Year vs. 15-Year Mortgage: Which Should I Pick?

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8. Save up a hefty down payment

Most mortgage lenders require at least some money down so you assume some risk when purchasing a property. But a larger down payment can help you qualify for the most competitive interest rates by reducing a lender's risk further.

A down payment of 20% or higher also allows you to avoid private mortgage insurance, which adds to your costs. And a higher down payment means more lenders will be willing to work with you, so you'll have more choices when shopping around for a loan.

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9. Consider applying with a cosigner or co-borrower

If your own credit and income don't allow you to qualify for a very competitive rate, consider applying with a co-borrower or a cosigner with better credentials.

The lender will consider the income and credit of all applicants and will offer you a better rate if you apply with someone who presents less risk.

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10. Avoid a job switch

Lenders prefer stable proof of income and are wary of giving a mortgage loan to people who recently changed jobs because their future income may be uncertain.

So, if you want to qualify for the best rate in 2022, avoid making career changes until after you've closed on your home loan.

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11. Research fixed rate loans vs. ARMs

You'll have a choice of a fixed rate loan or an adjustable rate mortgage (ARM) when you borrow. ARMs may have lower starting rates, but there's a chance the rate could go up over time.

Consider carefully whether you'd prefer to get this lower rate up front and take the risk of rates rising, or whether you'd rather get a guaranteed rate throughout the life of your loan.

Don't assume that just because an ARM starts out looking more affordable that you'll end up with the best rate in the end.

ALSO READ: Make These Moves Today to Qualify for a Mortgage in 2022

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12. Consider a government-backed loan

If you have a low down payment or imperfect credit, a loan backed by a government agency -- loans best known by their acronyms, such as FHA, VA, or USDA -- could allow you to get a better rate than those offered by private lenders.

While these loans all come with some added up-front fees, you may still be better off -- especially if your only other option would be a subprime loan with a high rate.

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13. Look into first-time buyer programs

If you are buying a home for the first time, lenders may have special programs that allow you to qualify for a loan more easily or with more competitive terms than you might otherwise qualify for.

Research these options carefully so you don't miss any opportunities to save.

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14. Decide if paying points makes sense

When you take out a mortgage loan, you have the option to buy down your rate by paying points. Usually, you can get a 0.25% rate reduction for each point, and each point costs 1% of the loan amount.

If you plan to keep your loan for a long time without moving or refinancing, paying points can pay off in the end by reducing your rate over the life of the loan.

But if you won't keep your loan for long, then the up-front costs of points may not be worth it.

ALSO READ: 3 Reasons Not to Buy a Home This Year

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15. Look at the big picture

Finally, you need to look at all the terms offered by each mortgage lender -- including the interest rate, origination fees, points charged, prepayment penalties, and repayment timeline -- when deciding which loan is right for you.

The loan that appears on the surface to have the lowest rate may not always be the best deal, so take the time to carefully consider the details -- including total loan costs -- to decide which loan is right for you.

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A better mortgage rate is within reach

Following these 15 steps is sure to help you qualify for the best possible mortgage rate. The clock is ticking on improving your credit and shopping around for a loan if you're planning to buy in 2022, so start working on checking these tasks off your to-do list today.

The Motley Fool has a disclosure policy.

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