These 4 Financial Moves Can Help You Get the Best Mortgage Rates
- Mortgage interest rates can vary substantially from one lender to another.
- Each borrower's individual financial credentials will affect the rate they're offered.
- Borrowers can get a better rate by shopping around for lenders and improving the credentials lenders look at.
Don't pay more for your mortgage than necessary.
For most people, buying a home without a mortgage isn't a realistic possibility. A home loan is necessary to help pay the expensive cost of a property.
If you're one of the majority of home buyers who needs a mortgage in order to be able to purchase a property, you'll want to get the lowest-priced loan possible. That's because mortgages are for a large amount of money and they have a long repayment timeline, so they can be expensive types of debt over time -- especially if you pay more than necessary.
The good news is, a few basic financial moves can help you qualify for the most affordable mortgage possible in order to keep borrowing costs down. Here are the four moves to focus on.
1. Improve your credit score
Mortgage lenders consider your credit score when assessing the likelihood you'll repay the loan. A lower score suggests you haven't proved you can be responsible with your debts, so lenders will be less likely to offer you a loan at a competitive rate.
You can work on improving your score by making all of your payments on time during the period leading up to applying for a mortgage. You can also ask creditors to remove negative reports from your credit record, which they may do if you've generally been a good customer but made one or two mistakes. Paying down debt can also help your score as well.
2. Pay down your debt
Reducing debt can help you improve your credit score, as mentioned above. But it can also help you in another way to qualify for a more affordable mortgage. That's because mortgage loan providers look at your debt relative to income when deciding whether to give you a loan and what rate to charge.
If you have a lot of debt relative to what you earn, this sends up red flags suggesting you may be in too deep financially. As a result, you'll be charged a higher interest rate on your home loan because lenders will fear you won't pay. If you have a lower debt balance, though, you present less danger of default, so you’ll be offered a better rate.
3. Save a reasonable down payment
Saving up money to put down on a home can also help you get a more competitive rate. That's the case for a few reasons.
If you have a larger down payment, then there's less risk to a lender since you'll owe much less than the home is worth. If the lender is forced to foreclose, there's very little chance it will get less money for the home than you still owe. As a result, it likely won't lose money.
Aside from the fact you present a lower risk when you put a lot down, having a big down payment can also help you in other ways. See, while a limited number of lenders make loans to people with low down payments, your choices of who to borrow from will be narrower if you don't have much to put down. If you have a big down payment, though, almost any lender will want to work with you so you'll be better able to shop around with a bunch of loan providers to see who offers the most competitive rate.
4. Shop around for a mortgage loan
Finally, the last step to getting a great rate is to get quotes from several different lenders. That's because rates vary a lot from one loan provider to another. If you take the time to compare all your options, you can borrow from the mortgage lender offering the best terms.
By taking all four of these steps, you can get the best rate on your home loan possible and can save thousands over the life of the loan.
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