Lately, it seems like mortgage interest rates have been dominating real estate and home financing news stories. Rates hit record lows not too long ago and while they’ve increased slightly, they’ve remained close to these lows, enticing many prospective home buyers to enter the market and making refinancing a more attractive option for current homeowners. But how do you lock in one of these great rates? After all, the super low rates that mortgage banks advertise aren’t always available to every applicant. The rate you qualify for when applying for a mortgage will depend on several factors. In order to secure the lowest rate possible, there are a few steps you should take.
1. Improve Your Credit
Your credit score will be a major factor in how banks determine the rate you qualify for. In fact, your credit score may determine whether or not you get approved for a mortgage. If you know your credit score could use some improving, do your best to increase your score before you apply for a home loan. If you don’t know your credit score, it would be a good idea to check beforehand. The Fair Credit Reporting Act requires each of the nationwide credit reporting agencies (Equifax, TransUnion and Experian) to provide consumers with a free copy of their credit report once a year, upon request.
2. Increase Your Down Payment
Most home loans require the borrower to put at least 20 percent of the purchase price down before the loan is granted. One exception to this is an FHA loan, which only requires 3.5 percent down to qualified borrowers. No matter which type of home loan you are applying for, by putting down more than the required minimum, you could reduce your interest rate. Banks are more likely to give you a lower rate if they don’t have to lend you as much money. So instead of paying the usual 20 percent try to save up enough for 25 or 30 percent. If you’re applying for an FHA loan, instead of the 3.5 percent down, try to pay 5-6 percent instead. Talk to your lender to see how much more you would have to put down in order to qualify for a lower rate.
3. Pay Points
When you pay points, you’re basically paying for a lower interest rate. The concept itself is not difficult to understand, but you should speak with your lender or broker to discuss exactly how many (if any) points you should buy and how it will decrease your interest rate. There may be some instances where the extra expense isn’t really worth it.
4. Shop Around
Mortgage banks are pretty competitive when it comes to their interest rates. Feel free to shop around and compare rates from multiple lenders, but keep in mind that their advertised rates may only be available to a small number of qualified borrowers. You should obtain actual, personalized quotes from several different mortgage lenders to see exactly what rates you would qualify for. Most lenders will offer you free rate quotes after reviewing your information (the amount you’re borrowing, how much of a down payment you’re making, etc.).
ForTheBestRate.com is a great place to get started when you’re shopping around for a mortgage rate quote. Through this site, you can instantly connect to a variety of lenders and search for current mortgage rates by location.