5 Hacks To Get The Best Mortgage Rates (and help you save money)
Shopping for a home can be an exciting experience. Your real estate agent can be helping you find a home that is a complete upgrade from your current residence or you may be downgrading to something smaller because you may not need the space. When looking for a home you also need to consider how you will be paying for that purchase. Some may be paying the home outright but the majority of home-buyers will take out a mortgage. There are strategies to help you in getting the best mortgage rate for your home loan, here are 5 hacks:
Improve your credit score
Your credit score is very crucial when it comes to acquiring a lower mortgage rate. Your credit score informs your prospective mortgage provider about how frequently you make on-time credit repayments and how likely you are to default on your debts. A lender will be less interested in lending to you if you have a lower credit score. In general, the better mortgage lenders, those with the lowest interest rates, will not lend to you if your credit score is less than 600. If your credit score is lower, you will need to find other lenders who will lend to you at a higher interest rate. A higher interest rate will raise your monthly mortgage payments, restricting the size of the mortgage you can afford. Maintaining a high credit score is not just excellent financial practice but it will also help you get pre-approved for a bigger mortgage and potentially at a better rate.
Gather your employment history
Lenders often want two years of consistent income and work to verify you can afford your mortgage payments and repay the loan in the long run. If you are a salaried employee, lenders will need specific paperwork as well as federal tax returns for the last two years to prove your income. Lenders will also check with your company to see how long you have been with them. If your wages have decreased or you have had pauses in work in the recent two years, lenders may be cautious of your capacity to finance a mortgage, and you may have difficulty obtaining a mortgage pre-approval.
In contrast, self-employed borrowers must go through more hurdles in order to obtain a mortgage. It is likely that self-employed borrowers should expect to pay higher interest rates than those rates you may find during your research. This is because rates are for those borrowers who are regarded as more creditworthy due to their consistent, verifiable revenues and great credit ratings. Lenders also have stronger procedures in place for confirming self-employment income. Not only will you be required to produce federal tax returns for the previous two years, but you will also be required to present a signed statement from an accountant, a profit/loss sheet, and other paperwork to demonstrate sufficient company revenue. Ultimately, to get the best rates to have an entire history of your employment that may include all the necessary documents ready to present to your lender. If you are planning on taking out a mortgage in the near or far future, begin with finding steady employment.
Increase your income
To get better mortgage rate offerings from potential lenders you may want to consider increasing your overall income. You can even go as far as asking lenders what amount of income you will need for the desired mortgage rate. However, Increasing your income isn’t a quick or easy endeavor, and changing careers is probably not likely on your to-do list. Increasing your salary, on the other hand, will immediately boost your income-to-debt ratio thus affecting mortgage rates when you shop around.
One tactic to increase your salary is to negotiate with your current employer. This is the greatest alternative because it protects your present tenure, which mortgage lenders also consider. If you are not comfortable negotiating, it could be worth looking into taking an online course that can better explain negotiating strategies and etiquette. On the other hand, you may also want to consider finding a better paying job. It is likely that you are getting paid less than your market worth, particularly if you have been in the same position for a long period. The disadvantage of this is that you will most likely need to work at your new job for a period before lenders can offer lower rates as employment stability is also important. Lastly, you can consider creating other revenue streams to increase your income. A new source of income, whether it is someone in your household expanding their working hours, renting out your spare room, or taking on a second job, of which can help in finding the best mortgage rates.
Decrease your debt
In addition to your income, your mortgage provider will consider your income-to-debt ratios when determining your mortgage rate. While earning extra income to pay off your debt is one way to pay it down, cutting your monthly expenses might also be a way to reduce your overall debt. You should pay off any current loans to enhance your debt-to-income ratio and get lower mortgage rate options. Credit card debts, other mortgages, vehicle loans, school loans, and any other lines of credit that demand monthly repayments are all included and should be paid down to help with being offered better mortgage rates.
Shop around for the best rates
Obtaining the best mortgage rate will result in a reduced monthly mortgage payment, in result, lowering the overall cost of homeownership. Finding a lender who would accept you for a lower mortgage rate will allow you to devote a greater amount of your payments to the principal rather than the interest. There are various ways to discover a reduced mortgage rate, but comparing all of the products on the market from a range of lenders is one of your best options for getting the best rate. Since various mortgage providers are comfortable with varying degrees of risk and profit margins, mortgage rates in the same market can vary greatly. If you do not compare rates before getting pre-approved, you might end up spending thousands extra each year. It is highly recommended to always shop around.
It is also critical to analyze the terms and conditions of your mortgage as well as the mortgage rate. A 5-year fixed mortgage rate versus a 3-year variable mortgage rate may cost quite different amounts depending on your circumstances and current market conditions. As a result, it is critical that you understand the distinctions between various mortgage programs and select the one that is ideal for you.
Assume you do get the best mortgage offer that fits into your budget. That is a great step in, but it is best to move quickly. The interest rate and maybe other terms are fixed for a specific period of time. You must complete the transaction during the lock time or risk losing the offer.
