How to Get a Fixed-rate Mortgage
A fixed-rate mortgage is arguably the most enticing mortgage available to home buyers because it offers the borrower a static interest rate that is locked in at signing, and thus, the monthly payments for the fixed-rate mortgage never increase. This is in stark contrast to the adjustable-rate mortgage, where the interest rate can increase or decrease depending on the index or cap rate the lender uses, which in turn, causes the monthly payments to fluctuate throughout the course of the payment terms. A fixed-rate mortgage is often harder for home buyers to secure, but with a little effort and good credit history, it's certainly possible. If you are in the market for a new home or want to refinance your current mortgage loan, read on to learn how to get a fixed-rate mortgage:
- Difficulty:
- Moderate
Instructions
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Before you apply for any major loan, including a fixed-rate mortgage, you should always pull your credit report and check what's currently on there. If you haven't already, you can take advantage of your free yearly credit report to prepare you for applying for a fixed-rate mortgage; you receive one free credit report every calendar year, which you can use to see any open lines of credit, check for fraud or inconsistencies and identify any outstanding debts that are listed. When applying for something like a fixed-rate mortgage, you should pull your report from all three credit bureaus to get the most accurate picture of your credit history because the bank you apply for a fixed-rate mortgage with will likely be pulling reports from all three, as well. You should also spring for your credit score, which will cost extra, but you will need to know if your score is high enough to even apply for a fixed-rate mortgage before you start the process. The average cost for your credit score is around $10, so it's not a large expense.
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Once you've reviewed your credit and established you qualify for a good rate on a fixed-rate mortgage, you will need to gather some documentation for the application process. If you have a higher credit score and good credit history, you'll likely only need to show verification of income -- your last two pay stubs -- and verification of citizenship. If you are applying for a fixed-rate mortgage with less-than-perfect credit, you will probably be asked to show more: proof of income for up to the previous year, proof of steady job history and proof of any other income along with your savings and checking account balances. You may also be asked to show proof of your liabilities -- money you owe on other loans -- when applying for a fixed-rate mortgage with moderately bad credit.
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With your credit history reviewed and your financial documents in hand, you can start the process to apply for a fixed-rate mortgage. And the best place to start your search for a fixed-rate mortgage is with your current bank. If you've been a long-time customer of your local branch, you'll have an increased chance at not only being approved for a fixed-rate mortgage, but you'll likely get better terms out of the deal. Pay your local branch a visit and bring along your financial and credit history information along with an estimate of the money you'll need from the fixed-rate mortgage and talk to a representative about the different options available to you for fixed-rate mortgages based on your credit and your needs. Be sure to specifically ask for a fixed-rate mortgage; some banks will push adjustable-rate mortgages to borrowers, knowing that they seem appealing to the borrower at first, but when the interest rate goes up, the borrower will end up losing money in interest across most of the mortgage's term.
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If you can't hammer out decent fixed-rate mortgage terms with your bank, there's nothing wrong with walking away and checking out some other banks. There are dozens of lending institutions that are more than willing to offer consumers a fixed-rate mortgage, so with enough effort you should be able to secure a one for yourself. The best way to get an accurate summary of the terms and interest rates available for a mortgage is to contact each lending institution directly; however, you can use a lender comparison website to compare the general terms available for to get a good idea of where to start. Lendingtree is a good website to use to compare terms; when you find a few lenders you are interested in working with, you can contact them directly and see if they can't offer you a better deal. Don't be afraid to tell each lender that you are comparing terms for a fixed-rate mortgage with other lenders to heat the competition up; if a lender knows you are shopping around for rates, they are more likely to offer you better terms and a lower interest rate to get your business.
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With a fixed-rate mortgage, you trade the benefit of a low interest rate for a guaranteed monthly mortgage payment. No fixed-rate mortgage is going to offer you a rock-bottom rate, while an adjustable rate mortgage will likely offer you a low interest rate -- in the beginning. Keep in mind that with an adjustable-rate mortgage, you will quickly be paying much more than you did in the beginning, and you'll never see that low introductory interest rate again. That's where the appeal of a fixed-rate mortgage is; you trade the incredibly appealing interest rate for the first few years of the mortgage for guaranteed stability. That said, it is certainly still possible to get a low interest rate with a fixed-rate mortgage; of course, the better your credit score and credit history, the better interest rate you will be able to secure.
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