Finding the Best Mortgage Rates for You
A mortgage is a critical investment that requires proper planning and preparation. Despite the rise of mortgage rates in the last few weeks, making home buying an expensive investment, it does not affect the interest of people to purchase a new home. Obtaining the best mortgage rate is more than comparison shopping and your credit score. There are many other factors that determine if you are eligible for a loan, including the interest rate you need to pay, your location, and loan term.
Tips for the Lowest Mortgage Rate
Increase your down payment. While it is advisable to save about 20% down payment, it can be difficult to achieve. However, it is one of the biggest factors in obtaining the lowest rate possible, saving you lots of money in the long run. Also, if you can place 20% or higher down payment, there is no need to pay additional mortgage insurance.
Increase credit score. Basically, the lender can tell how you handle your finances with your credit score. If you have a higher score, you have a higher chance of obtaining the lowest mortgage rates. Improving your credit score does not happen overnight. But, there are shortcuts that can help boost your credit score quickly and can be beneficial to the status of your finances. For example, if you gain 100 points more in your credit score, you can save more money every month on the same mortgage throughout the life of the loan. If you need additional financing and it is difficult for you to increase your credit rating, you may opt for a bad credit loan.
How long do you plan to stay in your home? An ARM (adjustable-rate mortgage) can give you the lowest rate available if you plan to live in your new home for only a few years. Generally, these ARMs have low and fixed initial interest rates for the first 5 to 10 years. Afterward, the mortgage rates adjust every year to the current rate in the market. You can take advantage of this low rate if you have no plans of staying in your property for more than the introductory period, considering that your rate, together with the monthly mortgage payment, could increase over time.
If you think that the adjustable-rate mortgages are too risky for you, consider a fixed-rate mortgage that has a shorter term. You will pay a higher amount every month, but you can obtain a low-interest rate. As a result, you can quickly build your home equity and pay less for the duration of the loan.
What is an ARM?
Adjustable-rate mortgages make home-buying more accessible for the people, as they offer lower payments and initial interest rates. The interest rate stays the same for a specific period. In general, the rates are better if the period is shorter. After that, certain factors in the market can make the rates rise or fall. For home loans, ARMs typically provide low mortgage rates.
On the other hand, your increasing payments could begin to affect your budget if the ARM starts to adjust when the interest rates rise. Also, it can make your annual budgeting challenging, and the cost can be extremely high if you opt to refinance your loan with a fixed rate. In the end, you are accepting some risks with an adjustable-rate mortgage when your lender absorbs a fixed-rate loan.
There are different types of adjustable-rate mortgages. ARMs with a one-year period usually come with the lowest mortgage rates, but they can also be the riskiest considering that every year, the interest rate changes. Common hybrid loans offer 5/1 mortgages, giving a fixed rate for up to five years and an adjustable-rate every year for the next 25 years. Comparatively, there are hybrid adjustable-rate mortgages that give an extended fixed-rate during the initial period at marginally higher rates.
What is a Mortgage Rate Lock Period?
A lock period, also called a mortgage lock-in, is an agreement between a borrower and a lender, which prevents the rise and fall of an interest rate within a predetermined period. Mortgage lock periods protect the borrower and lender from economic fluctuations during the process of mortgage. Lock-ins usually last for 30-60 days. You may ask your lender to extend the lock period as soon as the period is up. But, it comes with a few limitations. These locks can have additional fees and bring about a 1-point growth in the mortgage rates. For a longer lock period, you will likely have a higher fee. However, a mortgage lock period is quite useful if you want to avoid locking a refinancing loan or those last-minute financial problems.
The Best Rates from the Best Lenders
You can find many mortgage lenders that are willing to have business with you and offer you good options. Home loans vary depending on what kind of mortgage loan you want, where you live, and other financial factors. A mortgage is a custom product. Do your research and make a comparison shopping to have a clear path in finding the most competitive mortgage rates from the most reputable lenders in the mortgage industry.
How to Guarantee Pre-Approval for a Mortgage
When a lender or underwriter gets you pre-approved for a home loan or mortgage, it means they have checked your financial history and decided that you are responsible for repaying the loan. In general, mortgage lenders will look at your tax history, pay stubs, credit score, debt vs. income, etc., but the process is different from one lender to another.
You can have the best chance of getting pre-approved and find the most favorable mortgage rates by maintaining an excellent credit score. See to it that you are a consistent payer. It can be beneficial always to pay the bills ahead of time and try not to borrow money more than necessary. In addition, when mortgage brokers or lenders ask about your employment history, debts, savings, and other financial information, make sure to provide them all the essential details.