Peter Wachira

3 Tips for Getting the Best Mortgage Rate Buying a home is one of the most important financial decisions you will ever make. With the rising interest rates, choosing a good mortgage plan is a critical part of home buying. The mortgage rate will influence your monthly payments and the cumulative amount you will pay during the loan term. Getting a favorable mortgage interest rate will save you real money in the long run. Mortgages differ in nature, and the interest rates vary widely from one lender to the other. A slight difference in the interest rate can result in a significant difference in the total cost of the loan. Various factors influence the interest rate for the loan that you will qualify to get. These factors include things like your credit score, the downpayment, the period of the loan, and the value of the home you want to buy. Let’s look at what you need to acquire a lower rate. Improve Your Credit Score The first thing that you should do when considering taking a mortgage is to check your credit score if you want to secure a favorable mortgage interest rate. Although a lower credit score will not automatically deter you from getting a loan, ensuring the lowest possible rate and being struck by more stringent borrowing terms can make a significant difference. Lenders look at credit scores to determine how likely one is to pay the loan. If you have a high credit score, you will likely get a better interest rate. People with credit scores that are higher than 700 get the best mortgage rates, but if you have a score above 620, then you can get a conventional mortgage. If your score is higher than 580, then you can qualify for the lowest downpayment requirement and mortgage insurance rates. Getting your finances in great shape when you want to buy a home can be challenging, so you must think ahead and perhaps postpone looking for a house until your finances are in order. Save for a Sizeable Downpayment The more you pay for the downpayment, the less interest you will pay, and your mortgage payment will be lower. A conventional loan usually requires a 20% downpayment, but raising that to 30% could lower your rate by over 0.5%. Down payments below 20% attract private mortgage insurance (PMI), which you will have to pay until you attain enough equity to revoke it. Lenders also consider people who pay small down payments as high-risk borrowers. Reduce Your Debt-To-Income Ratio A key metric that lenders look at when evaluating mortgage applications is the debt-to-income ratio (DTI). DTI is the amount you remit monthly towards debts divided by your gross income. Most lenders prefer a DTI ratio of less than 36%; a ratio beyond 43% is risky, while 50% is the maximum. DTI helps lenders to visualize if you will be in a position to afford the monthly mortgage repayment. The tips mentioned above are just a few things you should consider when considering a mortgage loan. It would be best to utilize other things like choosing a shorter loan term, decreasing your debt, shopping for mortgage rates, and using a mortgage calculator. It would be best if you made efforts to get the lowest mortgage rate before you are ready to apply. An impeccable credit score and a substantial down payment should be adequate to lower your interest rate.