Buying a home is a terrifying prospect and a huge commitment in your life. Aside from marriage, buying a home might be the biggest commitment you make in your life. That’s why there are so many steps to buy a home and why it is such a complicated process. There are many decisions to be made and pitfalls to potentially fall into along the way. However, before the process can even get started, you’re going to need to secure a mortgage. Mortgages add another layer of complication to the house buying process, as different mortgages offer different rates. Finding a mortgage with a reasonable rate could eventually save you thousands of dollars off of interest payments. When you’re making payments for dozens of years, the savings can add up and give you a lot of financial flexibility. So how exactly does someone shop around for the best mortgage rates? Here’s how to secure the best mortgage rates possible.
Improve Your Credit Score
One of the best ways to get a better mortgage rate is to improve your credit score. Your credit score has a significant effect on what interest rate you receive, as it reflects how big of a risk you are. If your credit score is very low, lenders will view you as a risky investment and will compensate by charging you high rates on your mortgage. Conversely, a person with a high credit score will receive low rates on their mortgage since they are much less risky. There are a few ways to improve your credit score, but the majority of the methods revolve around paying debts on time. A couple of examples could be paying off a loan, or making monthly payments on a credit card. Paying off debt reflects positively on your financial position. As such, it will build your credit over time. Building credit can be a long process, but done correctly can be a great way to get the best mortgage rates.
Build Employment History
Another great way to get better mortgage rates is to build your employment history, making it more attractive to potential lenders. Employment history is an essential aspect of mortgage rates, as it is one of the ways lenders identify risks and good investments. A person with a stable employment history will receive much better rates than someone fresh out of school with little to no employment history. Banks and other lenders want to ensure that you can hold a job for an extended time. They also want to ensure that you have the financial security to pay back your mortgage. If you want better mortgage rates, then try building a better, more stable employment history.
Save for Down Payment
If you’re looking for another effective way to get lower mortgage rates, try paying a larger amount towards your down payment. The down payment is a major part of securing a home and has a significant effect on what rates you receive on your mortgage. A sizeable down payment signifies financial strength and security, meaning that your mortgage rates will likely be a good deal. A good rule for down payments is to pay at least 20 percent of the house’s total cost. This means that you have to borrow less and makes you much less of a risk for financial ruin, resulting in much better mortgage rates.
Shop Around for Lenders
There are a lot of things you can do to improve your chances of getting a reasonable mortgage rate, but sometimes it just comes down to who you talk to. Various lenders may read something different from identical scenarios, and as such, may offer different rates. If you spoke to your first lender and didn’t like the rates that he gave you, don’t worry. The chances are that another lender will see your scenario differently and offer better rates. If you continually shop around for lenders, then you could end up finding a much better rate and save yourself a lot of money in the long run.