Getting a mortgage loan is a time when you sign tons of papers and you hope nothing will come up and leave you bankrupt? You should give up such grim perspectives and instead learn more on how you can minimize debt. Getting a good interest rate should be your first concern.
But what’s a good interest rate?
According to Bank Rate, if you are considering an average 30-year fixed mortgage, you should aim towards an approximately 4% interest rate. 10 to 15 years mortgages should have an interest rate around 3%.
7 Tips for Getting a Good Interest Rate in Your Mortgage Loan
Now that you have a few basic numbers in mind, let’s see how you can become a home owner and ensure your long-term financial security at the same time!
- Take your time to find the best deal
Supposed you found your dream home, the real estate agent may be even more anxious to see the deal closed and get his or her commission. This is why they’ll recommend you a lender they have worked with before, just to speed up the process.
Nevertheless, it’s crucial that you look around for the best possible deal and not let anyone pressure you into getting a mortgage loan in a jiffy. Remember that you will be the one supporting the consequences of your decision for many, many years, so take your time and get offers from different loan providers.
- Think for how long you will be keeping the property
If you plan to keep your new home for the rest of your life, the best solution for most buyers is getting a 30-year mortgage, even if the interest rate is slightly higher.
On the other hand, if you plan to sell the property in a relatively short time, you have several options at hand. One would be getting an adjustable-rate mortgage. You’ll pay lower initial interest rates, and sell the home as soon as the rate grows. Another option is getting a shorter term fixed rate mortgage (10 or 15 years). This means you’ll be paying larger amounts of money each month, but you’ll support lower interest rates and start building equity faster.
- Find out if you qualify for special programs
The huge financial commitment of buying a home can become lighter if you are eligible for programs such as VA loans (for people who served in the military), first-time homebuyer programs, or USDA loans (for people living in a rural area). Some perks you may enjoy are lower down payments, increased protection in case you fail to pay your mortgage in time, and lower closing costs.
- Consider credit unions
Unlike banks, credit unions are nonprofit organizations that lend money at lower rates compared to for-profit banks. There are almost 7,000 credit unions in the United States and they are chartered either by the federal government or by the state government.
- Watch your credit scores
One of the criteria that loan providers use to set mortgage rates is FICO credit scores. FICO is a company providing predictive analysis services – they study your past credit information and use it to predict your future behavior, such as how likely you are to pay your mortgage rates or bills in time. The factors that are taken into account include types of credit you used, credit history length, indebtedness level, and payment history.
The minimum FICO score accepted by most loan providers is around 600. Nevertheless, if you want to enjoy a lower interest rate in your mortgage loan, you’ll need to have a credit score over 760. In order to improve your score, you’ll need to pay off your past loans and eliminate errors in your credit report.
- Pay a higher down payment
As long as you can afford a higher down payment of the property’s purchase price, make an effort and cover even 20% of the price. A loan with a 20% down payment is considered lower risk than one with 5% down, and you will be offered a better interest rate, because the loan provider is more likely to recuperate the money.
- Negotiate interest rates
There are so many loan providers available on the market, so why not shop around, just like you would do with any other purchase?
Discuss with several loan providers and keep notes of each lender’s offer. Ask for a rate lock-in for the interest rate they offer – by having a written agreement at hand the lender will not be able to increase the rate when you decide to close the deal. Moreover, if someone makes a better offer, you can use it to negotiate and obtain a better interest rate from a certain loan provider.
These are just a few factors that go into determining your rate. If you are interesting in making a major decision such as getting a mortgage loan, we recommend you to conduct a thorough research on the web and read as many tips as possible, besides getting expert’s help. New ways of getting the best from a mortgage loan appear every day, while other solutions may not work just as well at the time when you read this material.
Your turn now:
If you’re looking to buy a home soon, let us know! We can help you get a loan. Give us a call at (718) 915-8090 or click here to send us an email