If you’re buying a house this season, you’re in luck. Due to the sagging market, lenders are giving new homeowners lower mortgage rates than they have for the past 10 years. However, you’re going to need to do more than just show up to a lender’s office if you want to minimize your interest. Before meeting with your loan officer, make sure that you’ve taken these three steps to strengthen your portfolio.
1) Pay off all of your debts. Your credit score is the most important factor in determining the interest rate your lender will offer you. Don’t even bother applying for a mortgage until the majority of your credit card debts and other loans are paid off. Believe it or not, a 40-point ding on your credit score can result in a 1% higher interest rate on your mortgage. That can mean a house that costs you $20,000 more than it would have otherwise.
2) Explore different lenders. A good rule of thumb when looking for a home loan is to meet with five different lenders before accepting an offer. Exploring different options will give you some leverage when meeting with a loan officer. After all, if one financer offers you a good interest rate, the other ones you visit are likely to match it.
3) Get a fixed-rate mortgage. Adjustable rate mortgages might seem like better deals at first, but their variable interest rates will always cost you more in the long run. Unless you’re planning on selling a house within five years of moving into it, you should always, always, always get a fixed-rate loan. Fixed interest rates seem higher at first, but those rates will stay the same throughout the entire period of the mortgage.
The two keys to securing a good interest rate on your mortgage are presentation and competition. You want to present yourself as a reliable and trustworthy applicant while encouraging different lenders to compete for your mortgage. If you remember these two key things when buying a house, you can be sure to get a great offer for your home loan.
