As exciting as purchasing a home can be, it pays to get your financial ducks in a row before you apply for a home loan. If you’re trying to get the best mortgage rate, it’s important to know that a little bit of planning can save you a lot of money in the long run.
Your interest rate will depend on a few different factors, all of which you have the power to influence. The sooner you start, the better.
Before you shop around for a mortgage, review your credit report and make sure it accurately reflects your credit history. Something as simple as an error on your credit report can halt your mortgage loan approval – it’s best to handle these issues long before you apply.
- Pay your bills: The longer your history of successfully paying your bills on time, the higher your credit score will be. Lenders want to see a history of you managing your money.
- Pay down your debt: The less money you owe, the more stable your credit history appears. Even if your credit score is relatively high, a large amount of debt may make lenders pause before offering you a great interest rate.
When you’re getting ready to apply for a mortgage, it’s not the time to go out and take on a bunch of new debt. In fact, you might get approved at a low interest rate for your mortgage initially only to have the interest rate changed because your financial picture changed.
- Avoid big ticket purchases during your mortgage application and only use 20-25% of allowed debt. For instance, if you have a $20,000 limit on your credit card, do not carry a balance over $4,000-$5,000.
- Pay off credit cards if feasible before you apply for your mortgage, and avoid running up the balances while you’re waiting for the mortgage to close.
Putting down the industry standard of 20% of the cost of the house – or more, if possible – will save you money long-term, and not just because you’ll wind up paying less in interest over the life of the loan. The higher your down payment, the more invested you are in the property. This can result in lower interest rates from your mortgage lender.
The length of your loan can have a significant impact on the interest rate. Generally, the shorter the loan period, the lower the interest rate.
While it is true that your monthly payment will be higher with a shorter loan term, the total amount you pay in interest over the life of the loan can be shockingly lower. If you can manage it, opt for a 15-year mortgage.
Honesty is the best policy
It is in your best interest to honestly disclose all income so your lender can assess what mortgage rate is appropriate for your budget. Remember, your mortgage interest rate can change before closing – or your loan denied altogether – if you don’t tell the truth on your initial application.
Securing the best mortgage rate is one of the most important steps you can take when buying a home. Are you ready? Learn about mortgage loans and how to get the best mortgage rate by visiting SAC FCU’s online mortgage center.
First-time homebuyer? A printable guide is just a click away. Download your guide to home purchasing here.
Refinance for lower rates
If you already have a mortgage and you didn’t get the best rate when you signed the dotted line, consider refinancing. Dropping your interest rate one or two percentage points can save you an impressive amount of money over the life of the loan.