We found this great article on NewHomeGuide.com on how to get the best mortgage rate when buying a home. In short, when searching for the lowest interest rates, there are factors that you can control and those out of your hands.
- The Fed’s published Rate – this rate influences the rates at which banks can lend to each other and therefore lend to you. If the fed’s rate is high, your rate will be high and vice versa.
- How lending companies evaluate your credit. While there are a few ways to improve your credit score, what banks will interpret from your debt-credit ratio is out of your hands
Let’s move on to the things that we can actually do to ensure that we get the best rate possible.
What we CAN control
- Compare Rates – while rates from other companies are based upon the Fed’s published rate, each entity can vary slightly. Which is why it is a great idea to hire a broker who will search around and try to find the best rate out there for you. Don’t want to go with a broker? No problem, but it will cost you a bit more time since you will have to research rates on individual lenders websites. The key here is to compare lenders’ rates on the same day since interest rates can vary from day to day. Don’t just compare interest rates, compare APR or annual percentage rates. This accounts for other costs that will be factored into your payment like loan term, discount points, origination charge, and interest rate.
- Credit Score – while we can’t control how lenders interpret our score, there are a few ways to improve it. Get free copies of your credit score to review and correct any errors that it may contain. Pay off any existing debt if you can. Lowering your debt to income ratio is very beneficial for your credit score. Lastly, do not open any new credit cards, apply for any other loans, or make any big ticket purchases like furniture or a new car.
- Down Payment – a larger down payment decreases the amount of principal upon which we are charged interest. Therefore, the larger the down payment, the less interest you will have to pay over the length of the loan. Another option is to purchase discount points. While this is really only a good option if you are planning on living in your new house until it is paid off in full, lenders will offer a lower interest rate with the purchase of points. Remember when you purchase points you are basically paying for a percentage of your loan upfront. Usually the cost is 1% of your loan equals 1 pt.
Now that you have a better understanding about how to get the best mortgage rate, we hope this makes the home buying process a little bit easier!
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Chris Sutton Realtor & Auctioneer
Reliant Realty & Reliant Realty Auction Division
Home Run Real Estate Team