How to score the best mortgage rate in 2017
Despite the collapse of the housing bubble and subsequent Great Recession of 2008, mortgage rates have been on a significant downward trend over the course of the past thirty-five years, which is fantastic news for those looking to buy a home. Although rates have risen a little since their low point in 2012, the relative uncertainty of the market moving forward (pundits disagree about how much affect the Donald Trump presidency and the Fed raising rates again will have on rates) makes this a great time to lock in and take the plunge on a new mortgage. If you are considering taking out a home loan in 2017, here are four indispensable tips to help get you the lowest rate you are eligible for.
#1: Improve Your Credit Score
Your credit score is one of the most important factors lenders use to determine your eligibility for a low interest rate besides your income. It’s a simple formula: the higher your credit score is, the lower the rate you will be eligible for. Credit is usually measured on a scale to 850, but if you can get yours above 760, you will unlock the best rates available. Don’t know your credit score? Use a free tool such as creditkarma.com. Your bank might also offer a free credit score.
Don’t have the best credit? Don’t panic, analyze the problem and take action. You can easily raise your credit score up to 100 points by paying off outstanding balances on any open lines of credit, requesting an increase in the amount of the credit line, or resolving any outstanding debts that have gone to collections. You can see the effect different scores have on your rate here.
#2: Save Up For a Down Payment
This is another simple rule: the bigger the down payment, the lower the interest rate you will qualify for. The magic number here is 20%. If you can get to that, you will also not have to pay for mortgage insurance, which can effectively add half a percentage point to your rate!
#3: Get a Raise
Another key factor in the rate you will be able to secure is being able to show that you have the necessary income to afford the loan you want. The higher your income, the more trust lenders will have in you, and the less fees you will be charged.
#4: Do Your Homework
Not all mortgages are created equal. To get the best rate possible, you will need to get a 15-year fixed rate mortgage (FRM), which means your payments will be stable at the rate which was agreed upon when the loan was taken out. Don’t be fooled by the tempting option of an adjustable rate mortgage (ARM), which will give you a cheaper fixed rate for a few years in exchange for much higher, more variable rates for the rest of the life of the loan. Over the lifetime of the loan, you will end up paying much more in interest for a 30 year FRM or an ARM than you would a 15 year FRM.
Contact a MiLEND mortgage expert today to discuss the available options that will allow you to begin enjoying a lower monthly mortgage rate or term.