Getting the lowest mortgage rates in 2023 seems like an impossible feat, with the rising cost of living, inflation, and the rate of natural disasters. It is no wonder that less and less people are buying their dream homes year after year.
Despite the seeming decline in income and the rising cost of living, it is not impossible to get your dream home in the year 2023. How then do you get the best deal out of your mortgage deal? Very simple. We have listed easy-to-follow and practical steps to take to ensure you get the lowest rate possible on your mortgage deal.
A lower interest rate results in significant savings over the span of your mortgage, allowing you to pay off your loan quicker and build equity for your new property faster.
You also get to sell off the property at a higher price in the future if you so desire. Here are proactive steps you can take to help increase your chances of securing a high-value low-interest rates property.
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Improving your credit score makes you a more trustworthy borrower. Statistically, lenders reserve the best mortgage rates for people with the best credit scores. To be on the safer side, ensure your credit score is in the range of 720-850, (this is considered “excellent”). You do not want to have a score in the range of 300-629 as this is considered a red flag.
To grow your credit score, pay your bills on time and put down payments to reduce the amount of credit you can accumulate. In addition, keep your cards open as this helps prevent your utilization from increasing. Ensure you make a concrete list of debts you owe and pay them off, including those that have gone to collections.
Please note: apart from your credit score, lenders also consider your DTI (debt-to-income ratio). This refers to the percentage of your gross monthly income that goes towards debt payment. However, this number does not include non-debt expenses, such as utilities or groceries.
Remember to keep this number below 36% as lenders typically prefer a lower percentage: the lower, the better. Paying off your credit card debt will also improve your DTI.
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2. Consider a Shorter Loan Term
Considering that 30-year fixed-rate mortgage plans are a more popular and sought-after option, opting for short-term loans like the 15-year mortgage plan, can provide you with lower interest rates. Even though monthly payments are higher, you get to save a lot of money over the span of the loan.
3. Shop with More than Three Lenders
Always compare at least 3-5 lenders to see who offers the best interest rates, points, fees, tax credits, and other important factors. You can get a lawyer or financial planner to advise you better on this.
Never jump in to sign a mortgage contract without first weighing the deal and its effects on your income. You want to settle on a plan you can easily pay off without your property getting repossessed.
4. Get Your Finances Right
A lender performs background checks on you to ensure you can easily pay off the loan. A long-forgotten debt can disqualify you from getting a mortgage deal with your lender. Your lender gets this information by taking a deep dive into your finances and credit score, this means you have to pay off all outstanding debts and contact your bank to help you conduct a thorough check to ensure you are not forgetting any debt.
To show a stream of steady income, start by building a record of all employments held, any side hustle pursued and be ready to show pay slips from at least a 30-day period prior to when you apply as well as W-2s from the past two years. Self-employed borrowers or freelancers may be required to submit a profit-and-loss statement in addition to task returns to show a stable work history.
5. Save Massively for Your First Payment
Making a big first payment can help you secure lower rates, build trust with the lender, and help you build momentum to pay the rest of the fee on time. Putting a huge down payment could also help you escape having to pay private mortgage insurance which ranges from 0.05% to 1% of the original loan amount annually if you put down less than 20%.
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6. Lock in Your Rate
Due to the constant fluctuations in mortgage rates as a result of market conditions, once you find a favorable interest rate, consider locking it up with your lender. By so doing, the rising costs won’t affect your rates.
This agreement ensures that the stated rate remains valid for a specific period of time, which could be between 30-60 days. It keeps you protected from potential rises in mortgage rates as a result of increases during the home-buying process. Getting the lowest mortgage rates will provide you with peace of mind and stability.
7. Get Help from the Government
Conduct research to see if you qualify for any government-supported mortgage programs, like those offered by the Department of Veterans Affairs (VA) or Federal Housing Administration (FHA). These organizations often have more flexible qualification requirements and they often times offer more competitive interest rates.
Final Word on How to Get the Lowest Mortgage Rate Possible
To secure the lowest mortgage rates, you have to involve a combination of strategic decision-making, diligent research, and financial preparedness. You can also put yourself in the best position to obtain an attractive mortgage rate. To achieve that, you have to improve your credit score, rate-lock your interest, choose the right loan term, shop with more than three lenders, provide a substantial down payment, and get help from relevant organizations.
Bear in mind, that every point counts when it comes to interest rates. Invest your time and effort in finding the best deal possible as this can save you hundreds if not thousands of dollars over the span of your mortgage. We wish you the best of luck in getting your dream house.