How to Find the Best Home Mortgage Interest Rates
If purchasing a new home, you're likely interested in finding the best home mortgage interest rate. The interest rate on your home loan helps determine your monthly payment. Paying a high interest rate increases your payments and limits your buying power. For this reason, buyers typically do everything in their powers to secure a low, affordable rate. Before completing a home loan application, explore different ways to negotiate a lower rate.
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Improve a low credit score. To get the best interest rate on your home mortgage loan, you've got to have a good credit history and a high credit score. Order a copy of your free credit report from Annualcreditreport.com. If your score falls below 700, postpone buying a home and look for ways to increase your score (paying bills on time, disputing credit report errors). To qualify for the best interest rate, you'll need at least a score of 700.
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Pay down your debts. Even if you pay your bills on time each month and you have a credit score above 700, carrying a high credit card balance can result in a higher mortgage rate. Lower your debt-to-income ratio by paying off credit cards, installment loans and auto loans.
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Have money for a down payment. People with excellent credit (above 700) can usually obtain 100 percent financing, in which they don't need a down payment. These types of loans involve higher interest rates. To keep your rate low, save money for a down payment. Lenders traditionally require a 20 percent down payment. However, smaller down payments (between 3 and 10 percent) can justify a lower rate.
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Agree to pay points. Points are equivalent to 1 percent of the purchase price and they're paid upfront at closing. For each point you agree to pay, the mortgage lender agrees to lower your mortgage rate by 1 percentage point. The initial expense is costly, but you'll save money over the life of the loan.
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Contact a mortgage broker and request loan quotes from multiple lenders.
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