How to Shop for the Best Mortgage Rate

About 78% of real estate markets had double-digit price increases in 2021. It’s been a hot real estate market, and it’s harder to make buying a home more affordable than ever.

With the rising house prices in countries like the UK and United States, one of the best ways you can reduce the cost of buying a home. The main way is to get the best mortgage rate.

A low interest rate on the right loan can save a lot of money over the life of the loan. Do you want to know how to shop for the best mortgage rate?

Read this mortgage rate guide that shows you everything you need to do to get the best mortgage rates.

1. Boost Your Credit Score

How much does your credit score matter in getting the best mortgage rate? A lot.

On average, the highest credit scores between 760 and 850 get an interest rate of around 2.8%. On the other hand, the lowest scores get a rate of 4.4%.

It might seem like a small difference, but it adds up over the life of the loan. Let’s look at how much it would cost you for a $200,000 loan.

With a 2.8% interest rate on a 30-year fixed loan, you’ll pay about $822 a month. A 4.4% interest rate means you’ll pay about $1,000 a month.

Does that get your attention?

Raising your credit score by 50-100 points can save you a lot of money over the next 30 years. Here are a few tips to make it happen.

Pull your credit report and look for any errors. About a third of credit reports have errors on them.

Check your payment record and make your payments on time. The other way to raise your credit score is to raise the credit utilization rate.

This is the ratio between the amount of credit available and the credit used. Keep this to 30% or below for the best credit score.

2. Gather Documents

Lenders like to see economic stability before they lend you hundreds of thousands of dollars. Lenders want people to have two years of work with the same company.

Get your latest paystubs together and the last W-2 forms from the last couple of years. Lenders may want to see tax records as well.

If you’re self-employed, it’s a bit difficult to show economic stability. Gather the tax records from the last couple of years along with your profit and loss statements.

3. Consider Your Financing Options

The most basic loans are fixed-rate and adjustable-rate. Fixed-rate means that the interest rate doesn’t change during the term of the loan.

These loans are also categorized by payment terms, ranging between 10 and 30 years. A shorter loan term has a lower interest rate. However, your monthly payments will be much higher.

Your background opens the door to loan programs that can give you the best mortgage rate. First-time homebuyers are eligible for FHA loans.

Most people find these loans appealing because of the low down payment requirements. Borrowers with low credit scores will get a better interest rate than with a traditional lender.

There are similar programs for veterans, Native Americans, and if you’re buying in a rural area.  

Do you want to acquire investment property? You have different funding options available to you. For instance, you could get a fix and flip loan.

4. Contact Lenders

Do you know the difference between a mortgage broker and a loan officer?

A loan officer works for a financial institution and can only offer that institution’s products. A mortgage broker works with several lenders and can give you the best mortgage rate and product.

It’s best to contact a few lenders and get prequalified. Prequalification doesn’t impact your credit score and allows you to shop for the best mortgage rate.

Get recommendations from your friends and family for the names of brokers and loan officers. Check with your real estate agent as well.

Look at online reviews for different lenders to make sure they’re reputable and have excellent customer service.

5. Ask About Additional Costs

Don’t forget that you’ll have closing costs at the end of the homebuying process. Closing costs are commissions and fees charged by lenders.

There are underwriting fees, processing, appraisal, and title insurance costs. Get these figures from lenders on the loan estimate forms.

You might decide to pay points, which is a percentage of the loan amount to bring down the interest rate. You could pay thousands to get a slight improvement in the interest rate.

It doesn’t usually make too much of a difference in the monthly payment.  

6. Pay a Higher Down Payment

Another option is to pay a large down payment to reduce the lender’s risk. This can be a better option than points because you have equity in the home with your down payment.

It lowers your loan amount. Lenders often give a better interest rate and you’ll end up with a lower monthly payment.

How to Shop for the Best Mortgage Rate

If you want to save money when you’re buying a home, look at the mortgage rate. You can’t control employment reports or the country’s economy.

There are things that you can control that help you get the best interest rate. Start with your credit score and look at your financing options. Show that you’re economically stable and put more money down for the down payment.

You’ll be attractive to lenders who want your business. They’ll offer the best mortgage rate for your home.

If you enjoyed learning how to shop for the best mortgage rate, you’ll love the other articles on the blog. Check them out today!