Getting approved for a mortgage can be complex, but if you do things right, you may be able to get a lower mortgage interest rate.
Your credit score and credit report are vital for mortgage approval. Work on improving your credit score to get the best rate.
Your income and income compared to your debt obligations are other important parts of getting a mortgage, so don’t ignore that key part of the approval process.
Shopping around and working with your lender can save you even more compared to published interest rates.
personal finance coverage.
If you are looking to buy a home, you are likely preparing for the biggest purchase of your life. To finance a home purchase, many households look to a mortgage loan from a trusted lender. Mortgages make sense for millions of people.
To get the best deal, you can follow these steps to get a lower mortgage interest rate.
How to get a lower mortgage interest rate
1. Improve your credit
There are two main places a lender looks when approving a mortgage. The first stop is usually your credit report. If you are applying for the loan jointly with a spouse or other partner, it’s a team effort, so you should work with them on their credit, too.
The two biggest factors in your credit score are your payment history and account balances. Make sure to always pay on time and work to pay off any credit card and line-of-credit balances before applying for a new mortgage. It’s a good idea to take at least a six-month moratorium from applying for new accounts as well.
2. Optimize your debt-to-income ratio
As part of the loan approval process, also known as underwriting, the bank will look at all of your current debt payments. They will use your credit report to gather your minimum payments on every credit card, student loan, car loan, and other debt under your name on your credit report.
To decide if you can afford the mortgage, the bank will compare your monthly income to your monthly debt obligations. This is known as your debt-to-income ratio (DTI). If you have any way to increase your income and pay down outstanding debts, you’ll have the best possible DTI when applying for your mortgage.
3. Shop around for the best deals
In addition to qualifying for the best rate on your own, you should pick a lender with the lowest interest rates. Just because you have your checking account at a bank down the road doesn’t mean they offer the best rates. The internet makes it easy to quickly compare the best rates.
When I bought my home in Portland, Oregon, I talked to two local lenders and one nationwide credit union. I found the best rate given my income and credit came from PenFed Credit Union, so that’s where I got my mortgage.
For my current home, I shopped around again and found that a California-based lender, New American Funding, had the lowest rate for my finances.
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Source:: Business Insider