There’s no denying that interest rates are at a serious high, and it is unlikely that we will see them slide back down any time soon. Can you possibly get a decent mortgage rate in this volatile climate? It might not seem like it.
However, there are ways to find some good home loan rates. You can set yourself up for a reasonable rate, which is influenced by how much money you will pay during the life of the loan as well as your monthly payment. Factors in determining your interest rate include the home’s appraised value and your down payment.
Here are five tips for getting the best rates on your home loan.
Boost Your Credit Score
Improving your credit score is easier said than done, but it is a fantastic first step in getting a lower mortgage interest rate. If you have a lower credit score, you won’t automatically get disqualified from receiving a loan, but you definitely will not get the best rate out there.
Lenders look at credit scores as a benchmark for determining how likely it is you’ll repay your debt on time. The higher your credit score, the more favorably a lender will look at you, so the better rate you’ll get. You’ll need a score of 640 or higher to qualify for a conventional mortgage loan, but those with a 740 score or higher are more likely to secure a better interest rate.
Pay your bills on time and do as much as possible to get rid of credit card balances. Your balance shouldn’t be more than 20-30 percent of your available credit limit. Be sure to check your score often and address discrepancies on it if they come up.
Set Aside Money for a Big Down Payment
If you’ve been working a steady job for at least two years and have a substantial downpayment set aside, you will get a lower mortgage rate. Aim for about 20 percent down, even though lenders do accept less. However, less than 20 percent generally means you need to pay private mortgage insurance.
There are grants, programs, and loans out there for first-time homebuyers who cannot foot the 20 percent down payment. Check with these programs for eligibility.
Get Acquainted with Your Debt-to-income (DTI) Ratio
Your debt-to-income (DTI) ratio is how much money you owe versus how much you make. Your debts are compared to your gross monthly income. You’ll look more attractive to lenders if you have a lower DTI ratio. You’ll be seen as someone who can afford a new loan payment without wearing your budget thin.
You will want to keep your DTI below 36 percent. For a conventional loan, the maximum DTI is 45 percent. For FHA loans, it is 43 percent.
Think About Alternative Loan Terms and Types
Is a fixed-interest rate what you need? A 15-year fixed-interest rate means you’ll pay more per month than with the standard 30-year fixed-interest rate, but you’ll get everything paid off much sooner. This is a good option for those with supple cash flow or if you’re refinancing a current mortgage.
An adjustable-rate mortgage (ARM) is ideal during times when rates are high. You start off with a fixed-rate mortgage for the first five to seven years, then it gets switched to an ARM for the rest of the loan term.
Check Out Multiple Lenders
Always shop around, even if you’re just doing a refinance. You could save over $1,000 on average if you get more than one rate quote, and the savings only go up from there. Check first with your credit union or bank, but then seek out various lenders online and in person. That way, you will find the right loan rates and terms for your unique circumstances.
Finding the best home loan rate takes some time and effort. You can apply for a mortgage through District Lending and take advantage of having no lender fees tacked on to your bill. You might be surprised by how good of a rate you can get even with interest rates being at an all-time high.
