With endless mortgage companies and banks offering varying interest rates, it’s hard to determine which interest rate fits your budget. Still, our common goal is to receive the lowest one. These tricks will ensure customers receive the money desired with a low-interest rate attached.
Reduce or eliminate debt
Lenders and banks focus on the debt-to-income ratio. They equally gravitate to buyers who have control over debt. The ideal debt-to-income ratio is 30 percent and below. Potential buyers must pay most of their debt, too, before applying.
Spring clean credit scores
Buyers asking for a mortgage should know their credit score before lenders do. Contact the credit bureaus (TransUnion, Experian, and Equifax) for credit history and analyze their findings. Additionally, you can also check websites that give free credit reports.
A favorable amount for lenders and banks is 620-740 or higher. If you check credit scores online (i.e., Credit Karma, Credit Sesame), those sites will provide information on how to raise your score. Alternatively, you can do a Google search on ways to raise your credit score to a favorable amount.
Ensure no errors exist on your credit score by analyzing the credit bureaus’ credit history of you and resolving the issue by phone or email. Besides, an error could be the reason your credit score is low. While you’re at it, don’t apply for new credit during this time. Applications for loans and credit cards affect credit scores for a year.
Analyze several lenders
It’s easier to apply for a loan at the bank with your existing accounts, but don’t rely solely on that bank. Recommendations from friends, family, and the realtor should not become the final say either.
The paramount solution is to research several lenders. Mix bank lenders, mortgage lenders, credit unions, direct lenders, and online only lenders as possible contenders. Compare low-interest rates, the length of the contract, closing costs, and fixed versus adjustable mortgage. For a fair comparison, provide the same information to all mortgage forms. Narrow the choices down to at least three reputable companies.
Ask questions to the final lenders and banks by phone, emails, and in-person meetings. Ask the tough questions pertaining to interest rate, fees, down payment, pricing adjustments, and hidden fees.
In turn, buyers must look favorable to lenders by answering questions related to down payment, type of property purchased, taxes, insurance, savings accounts, and debt-to-income ratio. Channel your instincts and side with the lender who has an appealing mortgage rate, is willing to answer questions and appreciates your business.
Increase down payment
Each lender expects buyers to pay a down payment. The down payment, depending on the lender, ranges from three percent to 20 percent.
Buyers who pay more than the initial down payment receives a lower interest rate. It’s due to lenders receiving more money upfront. They won’t see you as a risk, even if the property decreases in value after closing. In turn, mortgage insurance becomes optional instead of mandatory.
Adjust the mortgage contract
A low or high-interest rate depends on whether buyers select fixed or adjustable mortgage contracts. A low or high mortgage payment depends on the length of the contract. If the current contract won’t suffice, change it.
Lengthen or shorten the contract depending on your preferences. Shorter contracts pay less in interest rates and more in monthly payments. Longer contracts pay more in interest rates but less in monthly payments. Hybrids also exist for buyers who want the best of both worlds.
Connecting with a mortgage lender with the lowest interest rate is an investment lasting long after closing. Stick with a lender you love. Include title searches, home inspection, and supplemental fees into the equation before deciding.
DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation in writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.
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