4 Tips For Scoring The Best Mortgage Rate Possible

4 Tips For Scoring The Best Mortgage Rate Possible

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It’s easy to get caught up in the excitement of buying a new home. The end product is just so appealing – the personal space, the private yard, the primo location. In the new house frenzy, it’s easy to forget about things that seem much less significant, like finding the best mortgage rate possible. However, landing a rate that’s even a quarter-percentage point lower can save you thousands of dollars. That’s why it’s important to know how to find those great deals on mortgage loans, and the following tips will help you do just that…

Photo: Flickr/Daniil Vin

Shine Up Your Credit

Put some time into making your credit score look as good as possible. This is so important. Unless you have a lot of up-front money to show a lender, your credit score will be a major indication of how attractive you are as a borrower. There are a few easy ways to accomplish this.

First, request copies of your credit report from any of the three free credit reporting bureaus and check them for errors. Next, pay down your debt as much as you can. It may take a while, but it will help raise your credit score. The last one is simple: just pay your bills. Pay them regularly and on time. So put your credit score in its best outfit. A presentable credit score really does help. The less risky you look, the more a lender will want to work with you.

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Dazzle Lenders With Your Income

A regular and reliable income looks excellent to a lender. In fact, it’s a good idea to delay the homebuying process until you have been at a job for at least two years.

Entrepreneurs have many more hoops to jump through before being granted a mortgage loan. If you are a freelancer, or if you own your own business, a lender might even ask you to get a cosigner. One way around this, would be to have a traditionally employed spouse apply for a mortgage loan, solely in his or her own name.

Photo: Flickr/Steven Depolo

The Higher, The Better

Typically, lenders want you to put at least 5% down on your home, though there are programs out there that will allow 3% (or lower) down payments. These low down-payment options are ideal if you want to move quickly, but the penalty will be a higher interest rate.

Ultimately, the higher the down payment, the better the rate. Bonus tip: If you can come up with a 20-percent down payment, you will avoid paying the dreaded monthly private mortgage insurance (PMI).

Photo: Flickr/GotCredit

This Loan Or That Loan 

Shop around for your mortgage loan. Check out the different loan types to determine which option works best for you.

Each loan has its pros and cons. 30-year loans allow borrowers a whopping 30 years to pay the money back, but the drawback is 30 years’ worth of interest payments. 15-year mortgages have lower interest rates, but higher monthly payments. Adjustable-rate mortgages (ARM) typically offer attractive initial interest rates, but these rates could later go up.

There are also government mortgage loan programs that offer lower interest rates to low-income or first-time home buyers. Unfortunately, these loans have many strings attached, so they aren’t as appealing to sellers. Offers made with these loans attached to them may be passed over for less complicated loans.

This is a decision that will affect you for years to come, so do your homework and weigh your options. Before you know it, you’ll be ready to buy the home of your dreams.