In today’s article, we’re sharing some killer home buyer tips with you. These tips will play a big role in helping you acquire the best rate on a mortgage.
That’s right. Today’s article revolves around how to get the best rate on a mortgage. We’ll walk you through some steps that you may have not considered.
New to the game
If this is your first time going for a mortgage, or even if it’s your second, we believe you’ll appreciate the ideas we have in store for you.
We love that mortgages make homeownership possible to many across the United States. But that doesn’t mean the waters are easy to navigate. By finding yourself better informed, you’re a step ahead of the mortgage game.
Who likes going into something blindly?
No one should. Especially with a big, life-changing decision such as homeownership and a mortgage.
We have your back.
How to get the best rate on a mortgage
Interestingly, getting the best rate on a mortgage isn’t rocket science — in spite of how intimidating it may sound. But if you don’t know what it takes, you don’t know what it takes.
Before we embark on this journey of information, let’s take a moment to discuss what a mortgage is so we’re all on the same page here.
Definitions are important
We won’t get into mortgage history. That’s all in another article, worth your time for later.
To explain the term, we’re going to look at some Latin. If you’re well-versed in Latin, you may already have an idea of where we’re going with this. If not, don’t worry. We’re breaking it down for you.
In Latin, the word “mortgage” comes from two Latin words. The Latin words mort and gage each carry a different definition.
For mort, the definition is “death” or “dead.” Gage means “pledge.”
Put them together and they mean death pledge.
It’s not as dark as it sounds. Trust us.
The death part is talking about the death of the pledge. So in a mortgage agreement, you pledge to pay off the arrangement (interest and loan.) Once it’s all paid off, the pledge “dies.” It’s no more once it’s paid in full. The contract is over, it’s been fulfilled or satisfied.
Makes sense, right?
Why would you want a mortgage?
A mortgage makes homeownership more accessible to families across the United States.
Most folks don’t have $100,000 sitting in their bank accounts, waiting to go into a house investment.
According to a Fox News article published in February 2019, many Americans are challenged in taking on an affordable home.
Say hello to the mortgage. A mortgage empowers a person or family to acquire a home sooner rather than later. Instead of dishing out all the money up front on a house (a practically impossible feat for most,) the finances to fund the purchase can be borrowed. Once the loan is approved, the borrower then, in a sense, pays for the home over time. The lender is returned the funds, bit by bit along with the interest agreed on.
This a huge benefit to someone looking to buy a home for their family. Especially if they’re thinking that it’s time to move away from a rental into property of their own.
But what does it take to find a good mortgage set up? Well, you’ve come to the right place. Together, we’ll go over how to get the best rate on a mortgage.
What determines your mortgage rates
Enough with the groundwork. It’s time to get to the meat of our article. Let’s look at what it is that determines your mortgage rates. After that, we’ll look at some tips for getting the mortgage lenders to take you seriously.
Of course, you do want to be taken seriously. Right? Right.
Your lender of choice
Let’s face it. There is a multitude of lenders out there. So it goes without saying – the lender you chose will affect the mortgage rates you get.
That’s why we believe making the effort to shop around is a prime idea. Talk to friends, scour the Internet, and make phone calls. Don’t be shy about asking questions, even if they seem dumb.
Interact with the mortgage lenders and see how they interact with their potential clients. See what others are saying about them. Ask if rates are negotiable. See what sort of deal they can set you up with.
And remember — the lowest rate isn’t always the best deal. There are other factors to consider — such as customer service. Are they going to treat you right throughout the next 15 to 30 years? This is not a short term relationship.
Your FICO credit score
So you may wonder at the header. What could we possibly be talking about? What is a FICO?
Well, let’s go back in time to 1981. The Fair Isaac Corporation (FICO) brought us the first credit risk score.
So FICO is a brand with a grand reputation for assessing and valuing credit scores.
The score is a three-digit number that runs from 300 and up to 850 or 900, depending on the industry. Your credit report is a significant player in what determines your credit score.
Why is your FICO score important? Most lenders look at it to determine whether or not you can be trusted to pay off a mortgage. The higher your score, the higher the probability that you’ll get great rates and find yourself approved for a mortgage.
A low FICO score lessens or mitigates your opportunities in borrowing or being taken seriously.
Learn how to build a positive credit score if you find that your credit score is pretty low. There are ways to build it and increase your chances of gaining approval for a mortgage and the best rates out there.
Terms of the loan
Another point that determines mortgage rates are the terms of the loan. It’s safe to say that in most cases, the shorter the term, the higher your monthly payment. And the longer the term, the lower your monthly payment. (Keep in mind, this is how it is in most cases. Please do check with the mortgage company before you agree to anything.)
If you have a low-interest rate, the amount of money you owe over time is low compared to a high-interest rate. That’s pretty straightforward.
Depending on the mortgage type, a mortgage term can range from 10 years to 40 years.
Down payment amount
Now let’s look at the down payment amount. Your down payment amount will determine your mortgage rate.
The more money you put in up front, the less you have to spend to get that mortgage. For example, in most cases, if you put down less than 20%, you’ll face the cost of private mortgage insurance (PMI.)
Your down payment also affects your interest rate. Borrowers with bigger down payments will often receive lower interest rates. That’s always a good thing for the borrower in a mortgage arrangement.
If you can cut corners on extra expenses, you’re doing well.
Now for another determiner in mortgage rates: property location. That’s right. The property’s location will have an effect on a mortgage interest rate. Here you can see a map that shows the average interest rate for a 30-year term mortgage according to location.
This is because lenders look at the averages of people who fail to repay loans in that geographic location. Other factors include the average of people in a location who sell or refinance their property before the mortgage company can make a profit.
State foreclosure laws can also have an impact on interest rates too.
There are numerous types of mortgage loans on the market. This will, of course, play a key factor on your mortgage rate.
For example, you will find fixed rate mortgages where the payments don’t change throughout the entire term.
Then there are interest-only mortgages where you pay the interest part of your loan for a set time rather than the payment and the interest. After that set period, you begin to pay the mortgage like you would in a normal mortgage situation.
Other types of interest rate mortgages exist such as balloon loans, VA loans, and more.
Cost of the home in mind and the mortgage amount
And then we have the cost of the home. You need to keep that in mind as you consider the weight of a mortgage rate. The interest is contingent on the cost of the property you wish to buy.
So there are three categories of mortgages in that respect. You have conforming loans (loans $424,000 or lower); super conforming loans (for pricey locations, loans are as high as $636,150 for one unit); and jumbo (mortgages that range beyond the conforming and super conforming categories.) Note that a conforming loan carries lower rates than super conforming loans. A jumbo mortgage will supersede both categories in mortgage rates.
Getting that winning rate
Now that we’ve discussed the factors that affect mortgage rates, it’s time for the practical part of our article. This is where we answer the question: How to get the best rate on a mortgage?
We have six big points that will help you get that winning rate for your mortgage. Your dream home is only a mortgage away!
Choose the appropriate location
As we mentioned above, your location can have a lot to do with your mortgage rate options. If you can, try for a different area and see how your mortgage rates play out there. You may be surprised at the difference a geographical location can make.
Go for an affordable loan
Consider the type of loan you’re going for. Instead of a 10-year or 15-year loan, your best bet may be a 30-year loan. Weigh all your loan options and think how they will affect you both in the past and present.
You need the right credit score
So how’s your credit score? As discussed further up, your credit score will affect the mortgage rates that are available to you. Start building your credit score now so that you can increase your chances at a killer mortgage loan rate.
Don’t lollygag on that. Use wisdom and get to building that credit score.
Start saving for a 20% down payment
Let’s look at your finances. Do you have enough money for a 20% down payment? Think about the price range for homes you’re interested in. Calculate what 20% of that would be.
How’s it looking?
If you can’t swing it just yet, and you can wait, we suggest saving up for that 20% down payment.
Know which loan works best for you
Just because a mortgage sounds like a good deal, consider which type works best for you and your specific situation. Get some financial advice. Every situation is different with unique factors that come into play.
Prove that you have steady employment
In acquiring the best rate on a mortgage, it’s important that you can prove your employment situation. Most lenders will want to know if you’ve had steady employment for the last two years. This will give them confidence in your ability to pay off the loan. Save any paper trails that denote your income.
Bottom line: make yourself attractive to lenders
So here’s the bottom line. When it comes to how to get the best rate on a mortgage, it’s key that you make yourself attractive.
Be the person a lender wants to loan money to. Feel free to call various mortgage companies and see what they look for in a potential borrower.
Do you fit the description? If not, what are you going to do to change that?
Take your time, scope out your options
And we can’t stress this enough — take the time to scope out your options. Make calls. Read the fine print.
You wanted to know how to get the best rate on a mortgage. We’ve answered. Now you’re ready to go forth and use this knowledge to your own advantage! We wish you the best in this thrilling chapter.
Get a quote today from Mortgage 1 Brighton. We’re happy to help you get the mortgage arrangement that fits your needs best.