If you are thinking about purchasing a home, it’s essential to stay ahead of the game when it comes to securing the best mortgage rate. Understanding mortgages and how to secure low-interest rates earlier rather than later is highly beneficial. Below you’ll find the essential information you’ll need to get started.
What is a Mortgage Rate?
A mortgage loan is what borrowers use to purchase a home or a piece of real estate. Homeowners pay the loan back in a series of monthly payments. However, the property serves as collateral until the loan is paid off.
Naturally, a mortgage rate is the interest rate applied to the loan by the lender. Generally, people want to get the lowest rate possible so that they pay the least amount in the long run. Lenders determine your interest rate, and it can either be fixed or it can vary over time. A fixed-rate mortgage remains the same throughout the life of the loan. On the other hand, an adjustable-rate mortgage is set for a period of time and then the interest rate adjusts at a pre-arranged frequency.
What Do Lenders Consider?
There are a variety of factors that lenders will consider when determining a rate for your mortgage. First, they will take your credit score in to account. Your credit score tells the lender how likely you are to make your mortgage payments on time. So, it’s a good idea to start improving your credit score beforehand, if possible.
Your down payment will also be a significant factor. The amount of your down payment is directly related to how much risk a lender has to take on. Therefore, larger down payments usually mean lower rates, while smaller down payments mean higher interest rates.
The type of loan you accept and the size of the loan also factor into your interest rate. Of course, you have different loan options to consider. Besides conventional loans, there are jumbo loans and government-insured loans. Most lenders will have different payment options with different interest rates. Additionally, there are VA loans for those who qualify. Many of our agents have extensive experience working with military families. Some of them are veterans themselves or have family members who have served. It is essential to take time to review each type of mortgage and its terms to figure out what works best for you.
How to Secure the Best Mortgage Rate
Potential and future homebuyers need to have the foresight to set themselves up for success. Saving up for a sizeable down payment and building a good credit score can take years but you’ll be glad you did it in the long run. Additionally, having a steady job history will also prove to lenders that you are reliable since it proves you have a steady income.
When you’re ready to buy, there are other important considerations to make. You may want to consider a shorter loan term. If you take out a 15-year fixed-rate mortgage vs. a 30-year fixed-rate mortgage, the interest rate will typically be lower. While an adjustable-rate mortgage can present challenges down the road for some, in the short term, its introductory rate may be lower than what you could get with a fixed-rate mortgage. However, it does depend on the current market. You also don’t know what the interest rates will be after the introductory period and there’s no guarantee that you’ll be able to refinance or sell right after the introductory period ends. Another important aspect to remember? Competition. Many different mortgage lenders are competing for your business so use that to your advantage by shopping around. Apply with at least three or four different lenders to see which one offers you the best rate.
This process is more complex than it may seem, so if you have any questions our local real estate experts are here to help.