Anyone who has shopped for a mortgage in the past five years or so has probably discovered it’s much more difficult to get a loan now than it was before the financial crisis.
Of course, that’s a not a bad thing from the perspective of a healthy bank lending system. Many of the loans made during the height of the real estate boom should never have been approved.
But things have changed in the mortgage lending market.
For one thing, mortgage rates are still low from a historical perspective – although they’ve risen a bit recently. And even though getting a loan is a little tougher now, home buyers can still find great deals out there.
Here are five ways you can get the lowest mortgage rate possible on your home purchase or refinance.
1. Your credit is still the key.
If you haven’t requested a copy of your credit report and gone over it with a fine-toothed comb, now’s the time to do it.
Your credit report – and resulting credit score – is the main thing a lender will look at when considering whether to give you a low interest mortgage loan.
Make sure every item on your report is accurate or file a dispute to have it removed.
You should also work to lower your debt to credit ratio.
If your total available credit limit is $30,000, then your outstanding debt should be around $6,000 or less. Try for no more than a 20 percent usage ratio.
2. Be completely honest in filling out loan paperwork.
With all of the new due diligence requirements facing banks these days, the chances are they’ll find any discrepancy you’re trying to hide.
It’s far better to be transparent and allow them to help you overcome any obstacles than to hide them and have it discovered.
“Be prepared to address
any bad marks on your credit.”
3. Don’t just focus on the low interest rate.
If getting the lowest mortgage rate is the only thing you’re concerned with, there’s a chance you’ll end up with a mortgage you don’t want.
For example, an adjustable rate mortgage (ARM) will almost always come with a lower interest rate than a 30-year fixed mortgage – initially.
But after adjusting upward, you could end up paying a lot more each month than if you’d just chosen the slightly higher fixed rate at the beginning.
4. A big down payment always helps.
The more money a home buyer puts down on the purchase of a house, the more likely they are to get a better rate.
Many lenders will allow things like one-time gifts, loans from family and other qualifying offers of down payment help.
Whether the money is a gift or a loan, the amount saved each month by lowering the interest rate can add up to big savings over time.
5. Ask about options.
A complaint many new home buyers have is that after locking in what they think is a good rate, the advertised rates drop during closing.
One way around this is to ask lenders about a “float down” option. This allows you to adjust your rate down if the advertised rate drops by a certain amount – usually around one-fourth of a percentage point.
There is likely a fee associated with this option, but it can be quickly made up in the savings of a lower rate.
Although mortgages are harder to qualify for and interest rates have risen a bit, this is still a great time to buy a home.
Use these tips and suggestions to help you get the lowest mortgage rate you can. Saving even a fraction of a point can mean huge savings over the life of a mortgage loan.
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