Home prices and mortgage rates are constantly rising, and thus every potential homebuyer is concerned about whether there is a way to save some bucks (even a few) on the mortgage payment. If your mortgage is pre-approved, the chances are that the mortgage rate will be estimated and locked in depending on when you actually finalize a home.
Every homebuyer looks for that one thing he thinks he deserves more than others; the lowest mortgage rate in the market. However, with every lender and buyer being different, so are the mortgage rates. However, there are a few tips to follow to.
Improve Your Credit Score
Your ability to get a low mortgage rate when purchasing a home is dependent largely on your credit score. If the credit score is higher, the chances are that the mortgage rate will be lower. So if you are planning to buy a home sometime next year or further in the future, the time is now to improve your credit score in every possible manner. You may want to analyze what is impacting your credit score adversely and dispute it if it is incorrect or improve on the factor if it is correct. Such things take time to change, and hence, if you really want the lower mortgage rate, maintain a good credit score starting today!
Improve Your DTI Ratio
Another major factor that decides on your mortgage loan and the amount of loan you prequalify for is your debt-to-income ratio or DTI. You may have to pay a higher mortgage rate if your debt is large compared to your income. You may be able to negotiate a lower mortgage rate if you maximize your down payment and pay off as of other debt as possible before applying for the loan.
Increase Your Down Payment
If the down payment you’re making is small or insignificant compared to the actual value of the home you’re buying, the chances are that you will not be able to score a low mortgage rate despite a good credit score. If your down payment is less than 20% of the total home value, you may also have to pay the private mortgage insurance or PMI. If you want to really save on the interest you pay to the lender by scoring a low mortgage rate; you should try to pay up as much down payment as possible.
Pay for Points
To get a lower mortgage rate, a few home-owners do not hesitate in paying for the points. This is not entirely a situation with many pros, and hence you need to weigh whether this will be well worth your money. Wondering what it means to pay for points? NerdWallet simplifies it for you: 1% of the total mortgage amount is an upfront fee, also known as a point, which you may pay in advance to lower the mortgage rate by a fixed amount, typically 0.125%. So whether paying for points makes sense for you depends on the amount you’ve taken as a loan and whether or not you plan to keep the loan going for a long time. For short-term loans, the interest saved is often outweighed by the amount you need to pay upfront.
Also, the opposite of paying points is a few negative points to consider. For a higher ongoing interest rate, a lender may be willing to reduce the upfront fees. It is often irresistible to let go of the offer, but when the loan amount is large and the loan term length, the additional interest money you will have to shell out will be much more than the money saved in the upfront fee.
Scoring a lower mortgage rate is not all luck; work on it now, and see what these tips work for you later!