If you are buying a home, you want to make sure you are getting the best mortgage rate possible. Although your mortgage rate may seem like a small percentage, it has a huge effect on your loan and can either save or cost you thousands of dollars.
To get a better idea of how your mortgage rate affects your loan, try out this mortgage calculator.
This gives you an idea of how much you can afford and estimates your monthly payment. You can also visually see the difference that an interest rate of 4% makes on a 30-year loan compared to even a 3.50% interest rate.
There are so many different home-buying programs, resources, and tools available to help you get the best rate on your mortgage.
In this article, we will break down how to get the best mortgage rate on your home loan.
5 Ways to Get a Better Mortgage Rate
Your mortgage rate has a huge effect on how much you pay over the life of your loan.
1. Improve your Credit Score
One of the first things lenders look at when calculating your mortgage rate is your credit score. The higher your credit score, the less risk lenders take on, lowering your mortgage rate. If you have a low credit score, lenders assume more risk and pass that on to you with a higher mortgage rate.
Improving your credit score can save you thousands on your mortgage. Even a small boost from 660 to 680 could save 0.60% off your interest rate!
If you are considering applying for a mortgage make sure your credit score is strong. Even if it means waiting a few months to a year to give you more time to improve your score. It can save you thousands of dollars in the long run.
2. Decide on a Down Payment
It’s ideal to have at least 20% of the cost of your home as a down payment. The more you put down the less you will have to borrow from a lender. The less you borrow from the lender, the less risk the lender takes on, lowering the mortgage rate for your loan.
Although most lenders want to see homebuyers put down 20%, there are other down payment options. Some lenders offer lower down payments ranging from 3% to 10% to accommodate these types of buyers. The less you put down, the higher your mortgage rate will be because the lender is taking on more risk.
3. Consider Paying Points
Another option to get a better mortgage rate is to pay points. Points are an upfront cost that will lower your interest rate by a small percentage, usually 0.5% or 0.25%.
You can move the interest rate lower or higher by comparing mortgage points versus credits. To see how points and credits affect your mortgage, try our mortgage points calculator.
4. Choose the Best Loan for You
There are a lot of different types of home loans you can choose from that offer different rates. Make sure to check current mortgage rates before locking in yours.
A few of the most common types of mortgage loans are
- Conventional loans
- Convention jumbo loans
- FHA (Federal Housing Admin) loans
- VA (Veteran Affairs) Loans
- USDA/RHS Loans
Each loan has its own unique benefits with different qualifications. For example, VA loans have the greatest benefit – not requiring a down payment – but in order to qualify you need to be a military veteran.
5. Shop Lenders and Compare Rates
There are many reasons you should shop around for a mortgage to get the best mortgage rate. you should get a quote from at least 3 lenders and compare rates. Lenders offer different types of loans at different rates so this ensures you are getting the best rate possible.
Here are a few tips on how to get quotes and compare rates from multiple lenders.
Get the Best Mortgage Rate on your Home Loan
At Loan Compass, we specialize in getting homebuyers the best mortgage rates possible. We help buyers through every step of the homebuying process from preparation and loan shopping to closing on your home.
If you want to make sure you get the best mortgage rate on your home loan, speak with an experienced loan officer today!