Securing the best mortgage rates is a long-term benefit for all types of home buyers. It translates into lower monthly payments, paying a lot less interest over the years, and for certain buyers, it can pave the way to more expensive and larger property.
Yet qualifying for a low mortgage rate does take a bit of work along with a good-sized down payment and great credit. To achieve the best results, you need to conduct your research to gain an idea of what appeals to you, then you can decide on the lender. Here are a few important strategies you can use to qualify for and shop for the lowest mortgage rate and what are the typical mortgage terms you should know.
#1 Increase Your Credit Score
Conventional lenders tend to charge an interest rate that is higher for homebuyers with low credit scores. Increasing your credit score can go a long way towards qualifying for a lower rate. Many of the lenders will require a credit score of between 620 to 640 (minimum). In most cases, credit scores of 740 or more place the borrower in the top tier for conventional loan programs.
How Much Can A Good Credit Score Improve Your Interest Rate?
Depending on the current market pricing, it is possible to decrease one-eighth to one-quarter percent off the interest rate when your score remains above 740. Mortgage experts recommend working with your lender to give you advice on the steps you should be taking to increase your score.
#2 Compare Prices With Several Mortgage Lenders
What is the average mortgage in Texas? Many people will shop around before buying a TV or a new car, and the experts suggest that it is vital before deciding on which lender to use for a mortgage. A big mistake that many first time buyers make is to go with a lender that a real estate agent has recommended. Avoid settling on the first offer.
Interest rates, in reality, can vary significantly from one lender to the next. This often has to do with their volume and the internal costs that are involved to process these loans. To make sure you find a great deal, many experts suggest that you get 3 to 4 quotes from different lenders, and ideally from different types of institutions such as online lenders, credit unions, and banks.
When you start comparing interest rates, you must ask each company to provide you with loan estimates. Regardless of what the lender says, you can only validate each offering and then compare the different options when you receive official loan estimates. Unlike fee sheets or other types of documents that the lenders might give you, loan estimates are standardized documents that detail every cost linked to the mortgage. For the borrowers that do not have the interest or time to comparison-shop, Texas mortgage lenders can also help with the process.
#3 Decide On How Long You Plan To Keep The Loan
This is a very important factor as it can alter the mortgage type you end up choosing. For instance, if you prefer not to take risks you may choose one of the fixed-rate home loans that offer maximum security. But if you only plan to keep the home for a year or two, it is also safe to go with a 5/1 hybrid-mortgage, where you will be paying 1% less when it comes to interest. For a $400,000 mortgage, this interest rate difference is more than $250 a month.
It makes sense that a shorter loan term will ensure a lowered rate. While spreads between the mortgage rates associated with loan terms may vary, in general, a 20-year fixed mortgage rate is around one-eighth of a percent lower when compared to the interest rates on a 30-year fixed mortgage rate. The 15-year fixed-rate loans are about three-eighths to one-quarter percent lower when compared to 30-year fixed-rate loans.
#4 Save Up A Good-Sized Down Payment
What do you need to qualify for a mortgage in Texas? 20% down payments are no longer necessary for the majority of mortgage loans, yet when in search of a low rate, this certainly cannot hurt. This is because larger down payments will lower the loan-to-value ratio of your mortgage or the percentage of the price of the home that the lender finances. The lower LTV loans are often accompanied by a lower interest rate when compared to others since they are viewed as less risky for lenders.
#5 Consider Buying A Single-Family Home
Condominiums are regarded as riskier investments since they decreased in value a lot more when compared to other home types throughout the “housing crisis”. The mortgage rates are typically one-eighth of a percent higher when compared to single-family homes. However, if you can put down a down payment of 25% or more, these interest rate add-ons are usually not charged.
#6 Conduct Your Research
You can either shop online, by phone, or in-person with the different mortgage lenders. What you should avoid is just going mindlessly to the lender that your realtor has recommended. Even if you have built up a great relationship with your realtor it is still important to compare the different interest rates along with negotiating the best deal for you. You should also know what does a mortgage lender does.
#7 Don’t Forget To Ask About The Fees
The different fees linked to loans are a key reason why it best not to compare prices based solely on the best advertised rate. In some cases, the advertised rate may be lower when compared to others due to the fees that are not included in this price.
Some of the Texas mortgage lenders combine all the fees into a “loan preparation” fee, and others will separate the fee. You must ask each lender what the overall amount is going to be to settle the loan. In general, mortgage rates with a higher fee typically have lower interest rates.
#8 Make Sure You Always Provide The Same Information
When requesting rate quotes, the information that you provide must be the same for each lender. This information includes:
- Your credit score
- The use, type, and location of the property
- The home equity amount that you have or the down payment size
It is important to note that the mortgage rates change frequently, so a quote that you obtained today, cannot be compared reliably against the quotes that you obtain tomorrow.