Do not pay more than necessary for your mortgage.
- Mortgage interest rates can vary widely from lender to lender.
- The individual financial credentials of each borrower will affect the rate offered to them.
- Borrowers can get a better rate by researching lenders and improving the credentials lenders review.
For most people, buying a home without a mortgage is not a realistic possibility. A home loan is needed to help pay the high cost of a property.
If you’re one of the majority of homebuyers who need a mortgage to purchase property, you’ll want to get the cheapest loan possible. This is because mortgages are a large sum of money and have a long repayment term, so they can be expensive types of debt over time, especially if you are paying more than you need to.
The good news is that a few basic financial steps can help you get the most affordable mortgage possible to reduce borrowing costs. Here are the four moves to focus on.
1. Improve your credit score
Mortgage lenders consider your credit score when assessing the likelihood that you will repay the loan. A lower score suggests that you haven’t proven you can be responsible for your debts, so lenders will be less likely to offer you a loan at a competitive rate.
You can improve your score by making all your payments on time during the pre-mortgage application period. You can also ask creditors to remove negative reports from your credit report, which they can do if you’ve generally been a good customer but have made a mistake or two. Paying off debt can also help your score.
2. Pay off your debt
Debt reduction can help improve your credit score, as mentioned above. But it can also help you qualify for a more affordable mortgage in other ways. This is because mortgage providers look at your debt versus your income when deciding whether to give you a loan and what rate to charge.
If you have a lot of debt versus what you earnit sends red flags suggesting that you may be too financially involved. As a result, you’ll have to pay a higher interest rate on your home loan, as lenders fear you won’t pay. However, if you have a lower debt balance, you have less risk of default, so you will qualify for a better rate.
3. Save a reasonable down payment
Saving money to buy a house can also help you get a more competitive rate. This is the case for several reasons.
If you have a larger down payment, the lender is at less risk since you will owe much less than the value of the house. If the lender is forced to foreclose, they are very unlikely to get less money for the house than you still owe. As a result, he probably won’t lose any money.
Aside from the fact that you’re less risky when you put a lot of money aside, having a big down payment can also help you in other ways. You see, while a limited number of lenders will lend to people with low down payments, your choices for borrowing will be more limited if you don’t have a lot to deposit. However, if you have a large down payment, almost any lender will want to work with you so you can better compare with a bunch of loan providers to see who offers the most competitive rate.
4. Shop for a mortgage
Finally, the last step to getting a good rate is to get quotes from several different lenders. This is because the rates vary a lot from one lender to another. If you take the time to compare all your options, you can borrow from the mortgage lender offering the best terms.
By following these four steps, you can get the best possible rate on your home loan and save thousands of dollars over the life of the loan.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.