6 Ways To Lower Your Mortgage Rate
In case you are financially in a difficult position, lowering the mortgage rate will help you significantly. However, this implies that you are going to pay more interest eventually. In this article, we have mentioned why it is essential to lower mortgage rates and in what manner.
A high mortgage rate might account for a large portion of your income and you might be left with very little for covering the remainder of your living expenses. Generally speaking, it will be advisable for you to maintain a low mortgage rate, preferably below 30% of the take-home income of yours.
In case you are thinking of how to lower your mortgage rate every month, there are several ways for achieving that. In the following paragraphs, we have mentioned 6 ways to lower your mortgage rate effectively and successfully.
1. BECOME PREAPPROVED
Instead of becoming simply prequalified, make sure to get preapproved for the mortgage loan. In case of a preapproval, a credit report will be pulled by the lender which verifies the income of the borrower and he will likewise consider other preliminary underwriting measures for coming up with a maximum permissible loan amount. The lender will also commit in writing to make the loan in case a purchase takes place within a specified time frame. In case of a prequalification, although the information will be provided by the customer, the lender is not going to check it plus there will be no guarantee that the loan is going to be approved.
In case of preapproval, the shopper has to fill out an application form while providing supporting documents regarding income, banking activity, employment, assets, and debts. Preapproval will put you in a strong bargaining position with the sellers and real estate agents. This is essential in the seller market of today where there will be an increasing number of would-be purchasers compared to home sellers.
2. SEARCH FOR BUILDER INCENTIVES
Those trying to purchase a new home rather than a previously owned home might get incentives from the builder.
The majority of the builder incentives are available as reduced closing costs or discounted upgrades. Homebuilders are not willing to provide price breaks on homes which are brand new.
Rather than cutting the costs of new homes, home builders sometimes provide a considerable amount of money in discounts in the form of an incentive for using the preferred lender of the builder. It will be a sensible idea to look for a mortgage independently hoping to find a better deal than what can be offered by the builder and the affiliated lender.
3. CREDIT SCORES
At present mortgage lending depends on tiered pricing which implies that it will be possible to adjust rates based on different criteria. Your credit score is one of the most essential criteria. This score will ascertain whether you are entitled to the loan and what rate should be paid by you on that loan. In case your credit score is higher, your mortgage rate will be lower considering that other things are equal.
According to experts, borrowers having credit scores of more than 760 will be getting the best mortgage rates. The interest rate will go up in case the score becomes lower. Barring a few cases, the lowest credit score required for qualifying for a mortgage will be 620. A credit score of 620 will be qualifying for a 5.022% rate, while a score of more than 760 will enjoy a much lower 3.433% rate.
Theoretically, it will be possible for you to qualify for a mortgage with a score of only 500. This will need a down payment of a minimum of 10%.
In case you are not able to satisfy the minimum score requirements or in case you would like to improve the possibilities of getting the best mortgage rates, you have to start monitoring your scores. You need to make improvements wherever required. This might consist of paying down loans or paying off loans, paying collection accounts which are past the due date, and rectifying any mistakes on the credit card report.
4. HAVE A CONSISTENT AND LONG WORK HISTORY
Apart from a reasonable credit score, the lenders will likewise want to see a work history which is long and consistent. In case you are employed in the workplace for quite some time and your annual income is growing consistently, it will be more likely that lenders will provide you with a home loan at an attractive mortgage rate.
On the other hand, in case you have changed jobs several times in the recent past, lenders might hesitate to provide you with a big loan since your income aren’t reliable. Your employment status will be verified by the credit unions and the banks before an offer is made by you on a home and prior to the home purchase closing date. In case you have switched jobs or even quit your present job at the time of the closing process, you might not be able to receive a home loan.
5. REQUEST YOUR CREDIT UNION OR BANK TO PROVIDE YOU WITH A BETTER RATE
The worst thing that can happen while you request your bank or credit union for lowering your mortgage rate will be that they might say “no”. In case your credit score is quite good, request the lender to match the interest rate of a competitor. A lower rate of interest can also be requested by you depending on your exceptional credit score history. Lenders prefer to do business with individuals having fantastic credit scores.
6. PUT MORE CASH DOWN
Lastly, consider how much money you’d like to put down on the home purchase. In fact, home loans which are more than $417,000 are known as “jumbo loans” and these will be carrying more risk for the financial institution. These will also come with a higher rate of interest.
It might be possible for the consumers to benefit by putting down enough money for lowering a home loan in this case. This particular approach can save you a considerable amount of money in the long run.
However, be careful since it is also possible for extremely small home loans to have high rates of interest. Try keeping your loan amount to more than $100,000 for getting the best results.
CONCLUSION
The application process for a mortgage can be quite complicated; however, it becomes much simpler when you have your things organized beforehand. Therefore, make it a point to enhance your credit score and begin to save as well after paying down some debt. Getting excellent mortgage rates will depend on your finances and your credit to a great extent.