With all the talk about interest rates today, it’s no wonder every homebuyer and homeowner wants to find the best mortgage rate.
Interest is a fee you pay to cover the cost of borrowing money. The more money you borrow and the longer you borrow it, the more interest you’ll pay. Fortunately, there are still ways to ensure you get the best mortgage rates in 2022.
Use these steps to get the best rates available.
Check your Credit
Lenders first look at your credit score and credit history. It’s what tells them if you’re financially responsible.
If your credit report has a lot of late payments, collections, and other negative information, take the time to fix it. Your credit score changes monthly, so anything you do to improve your credit score now will help in the next couple of months.
You don’t need perfect credit to get a mortgage, but the higher your credit score is, the better rates lenders can offer. Try bringing all late payments current, manage your credit lines, and dispute any information that isn’t accurate.
Pull your free reports here if you aren’t sure what’s on your credit report, pull your free reports here.
Lower your Debts
Your debt-to-income ratio is the next thing lenders consider when qualifying you for a loan. The more debts you have outstanding, the harder it is for you to afford your mortgage payments.
To maximize your chance of getting the best mortgage rate, work on decreasing your debt as much as possible. Focus on high-interest credit card debt first, and then work on other large debts that make your DTI high.
Stabilize your Income
Lenders need to know you can afford your mortgage beyond a reasonable doubt. If you have irregular income or gaps in your employment, it doesn’t prove that you can afford a loan. Lenders might think you might leave your job and won’t have a stable income, making it hard to afford your loan.
Ideally, you should have a 2-year history at the same job when you apply for a mortgage. However, if you change jobs, try to stay in the same industry. Lenders usually accept jobs that were a lateral move as a continuous job history as long as your income stayed the same or increased.
Save for a Large Down Payment
The more money you have to put down on a home, the less risk a lender takes. Each loan has a different minimum down payment requirement. However, putting down more than is required can help you get the best mortgage rate.
Ideally, you should have a 20% down payment, but if that’s too much, get as close to 20% as possible to get the best rates.
Consider an Adjustable-Rate Loan
Consider an adjustable-rate mortgage if you’re buying a home for short-term ownership or need a lower rate now. You’ll get a teaser rate for a few years, and then the rate will adjust.
If you plan to move before the rate adjusts, you could save money with the teaser rate during the fixed rate years. Even if you don’t move, you could refinance the mortgage before the rate adjusts and get into a fixed-rate term.
Adjustable-rate loans aren’t for everyone, but they are a great way to get the best rate.
Consider a Shorter Term
Just like a larger down payment makes your loan less risky, so does a shorter term. The less time you hold the lender’s money, the less risk they take. Lenders can also do more with the money they lend you because they’ll receive it back sooner.
Before you take a shorter term, make sure you can afford the higher payment. For example, if you take a 15-year term rather than a 30-year, you cut the time to pay the loan back in half, which means a larger payment, but you’ll own your home in 15 years.
Determine if you Should Pay Points
Sometimes paying points helps you get the best mortgage rates available. Points are prepaid interest that allows you to have a lower interest rate throughout the loan’s term.
If the home is a long-term purchase, it can be beneficial to buy the rate down. You’ll pay back the cost of the points and then enjoy the savings from the lower term for the remainder of the term.
The best way to get the best mortgage rate is to shop around. Taking the first rate offered may mean you pay more than necessary for a loan.
The credit bureaus don’t hit you with multiple credit inquiries as long as you apply for a mortgage from different lenders within a few weeks.
The key when shopping around is to compare Loan Estimates. This is the document all lenders must provide you within three days of applying for a mortgage. The Loan Estimate tells you everything you need to know about the loan, including the term, interest rate, closing costs, monthly payment, and total costs.
Compare each loan’s monthly costs and over the life of the loan to choose the right option. For example, sometimes, the loan with the best mortgage rate costs more than one with a higher rate because the closing costs are higher.
Look at the big picture when comparing loans to ensure you get the loan that costs the least overall.
If you wonder how to get the best mortgage rate in 2022, it comes down to perfecting your qualifying factors. Lenders want borrowers who are confident in their ability to afford a mortgage.
Lenders look for borrowers with a good credit history and low debt ratio. They also want borrowers with a large down payment and stable income. If you don’t have all of those factors, it’s okay, but the more the better. If you have any negative factors on your application, try to find factors to make up for them. For example, if your DTI is high, but you’ve had stable employment for the last five years, it can make up for the higher DTI.
If you have any questions, don’t hesitate to contact Loan Factory to see how we can provide you with super-low mortgage rates.