Every homebuyer wants to be approved for a low-interest mortgage. The difference between a 3.75% interest rate and a 4.00% interest rate may not seem like much, but that 0.25% means you’ll pay $5,000 more for every $100,000 you borrow over the course of a 30-year loan. With larger loans and greater interest rate differences, you’ll also notice an impact on your monthly mortgage payment. If you’re wondering how to get the best mortgage rate, simply follow these tips.
Improve Your Financial Standing
Whether you are a first-time homebuyer or want to refinance an existing loan, having a strong financial standing can help you get a lower mortgage payment. Follow these steps to make yourself a lower-risk borrower:
- Check your credit score and report: Start by finding out your credit score. The easiest way to do this is to review your credit report, which you can access directly from one of the three major credit bureaus—Equifax, Experian, or TransUnion. Review the report for any inaccuracies that could be dragging down your score. If you find any, you can open a dispute online, by phone, or via mail.
- Improve your credit score: The best borrowers have a credit score of 760 or higher. If yours is lower than this, take a few months to improve it by making all your bill payments on time, lowering your credit utilization, and paying down loan balances.
- Save for a larger down payment: You can get a mortgage with less than 20% down, but many of these loans require private mortgage insurance (PMI), increasing your monthly housing expenses in the process. A down payment of at least 20% exempts you from PMI and may qualify you for a lower interest rate. In short, the more you’re able to invest in the property upfront, the less you’ll pay in the long run.
- Improve your debt-to-income ratio: The goal is to achieve a front-end debt-to-income ratio (DTI) of 28% or lower and a back-end ratio no higher than 36%. You can improve your DTI by increasing your income and paying down debt.
- Hold off on big life changes: Sure, it’s possible to get a home loan shortly after opening a line of credit, applying for an auto loan, or making a career change. However, it’s best to let your credit stabilize by avoiding these activities before buying a house to help you get a better interest rate.
Secure Your Home Loan Strategically
Even if you approach a lender with a stellar financial situation, there’s still more you can do to get the best mortgage rate. Here are some strategies to keep in mind:
- Watch mortgage rate averages: Rates fluctuate almost hourly. Short-term changes tend to be small, but you want to strike when rates are at their lowest.
- Consider a shorter loan term: Shorter terms almost always result in lower interest rates. For instance, as of November 2021, the average rate for a 15-year fixed-rate mortgage with 20% down and a credit score of 760 or higher is 2.64%. For comparison, the average rate for a 30-year fixed-rate mortgage with the same parameters is 3.31%. Your monthly payments will be higher with a shorter loan term, but you’ll owe less interest in the long run and pay off your home in half the time.
- Decide if an ARM is right for you: An adjustable-rate mortgage (ARM) is another option. Rather than having a fixed interest rate, ARMs adjust on a predetermined schedule. You might snag a low rate with this type of mortgage, especially during the introductory period, but you run the risk of a rate increase with each subsequent adjustment.
- Apply with three or more lenders: Nearly half of all borrowers stop after receiving one rate quote. However, you might find a better deal by shopping around. Just remember to account for closing costs, fees, and any discount points included in the estimate, along with the rate itself, to ensure an apples-to-apples comparison.
- Ask for a rate match: With several quotes in hand, you have what you need to negotiate with your lender. You might ask for a rate match if you want to go with one lender, but you find a better rate somewhere else. Even if the lender isn’t willing to lower the rate, you may still be able to haggle on the closing costs and other fees.
- Consider paying discount points: A discount point is a fee you can pay at closing to reduce your mortgage interest rate. Paying points is usually worthwhile if you plan to keep your mortgage for several years. Typically, one point costs 1% of the home’s value, and each point lowers the interest rate by about 0.25%.
- Reduce financial uncertainty by locking in your rate: Once you find a great mortgage rate, consider locking it in to prevent it from changing between now and when you close on the house. Without a rate lock, your interest rate—and therefore your monthly payment—could increase unexpectedly. Locking it in ensures you won’t have any surprises on closing day.
Apply for a Home Loan
If you’re ready to begin the mortgage application process, get in touch with Financial Concepts Mortgage today. We are a locally owned mortgage bank based in Oklahoma City, proudly offering some of the lowest rates nationwide. If you’re looking for a more affordable mortgage payment, you’ve come to the right place! Our team can help you qualify for your first home loan or refinance your current mortgage with excellent customer service every step of the way.
To learn more about how to get a better interest rate on a mortgage in Oklahoma, Texas, Kansas, Arkansas, or Alabama, please contact us at (405) 722-5626. You can also begin the pre-approval process online.