Getting the best mortgage rate can make a huge difference in how much you pay over the life of your loan, and even a small change in interest rates can add up to thousands of dollars in savings. The key is to understand the factors that affect your rate, and take steps to improve them.
The first thing you should do is check your credit before applying for a mortgage. A higher credit score will give you a better rate. It will also show that you are a safe bet for lenders to loan money to. You can improve your score by making timely payments on recurring debts, paying off your oldest bills, and by not making any late payments.
Your mortgage interest rate is determined by several factors, including your credit score, your debt-to-income ratio, and whether you have a down payment. In addition, your mortgage program and lender will influence your rate. For instance, if you have a government-backed loan such as an FHA mortgage or VA mortgage, you may be able to get lower rates.
You should shop for your mortgage rate at a variety of lenders, including large banks, credit unions and online lenders. These lenders often offer different mortgage products and competitive rates, so compare official Loan Estimates from at least three sources to find the right mortgage for you.
Mortgage rates are changing every day, so it’s important to shop around for the best deal. It’s a good idea to use Bankrate’s mortgage rate comparison tool, which allows you to compare rates from a number of lenders and loan types.
Shopping for a mortgage is a smart move that can save you thousands of dollars over the life of your loan, so it’s worth the effort to do it right. It’s not as easy as just choosing a lender that you trust, and it’s not as simple as using the same mortgage broker you use to buy your car or rent your apartment.
There are many things you can do to improve your chances of getting a better rate, but the most effective strategy is to work on improving your credit before applying for a mortgage. By raising your credit score to at least 720, you can secure the lowest mortgage rate.
A higher down payment is another great way to lock in a low mortgage rate. Putting down more than 20% can help you avoid private mortgage insurance, which can raise your monthly payment by hundreds of dollars. It can also reduce your loan-to-value ratio, which is a key factor for lenders to consider.
The ARM is another mortgage option that can help you save money upfront, but it’s risky. ARMs have a fixed interest rate for the first few years, but then they typically increase over time. Your payment can also increase if you don’t make on-time payments during this introductory period.
You should always apply for a mortgage with your home under contract, or “locked.” This gives you peace of mind that your mortgage rate will not change before closing, which can be important if you’re moving in a short time. You can also ask your lender if you can switch your mortgage from an adjustable-rate mortgage to a fixed-rate mortgage before closing.