How to Get a Great Mortgage Rate?
Simply performing comparison shopping is not adequate to get an attractive mortgage rate for purchasing your home. Plus, only improving your credit score does not lead to getting a good rate of the mortgage. The fact is that the mortgage industry assesses several factors to ascertain whether a person is eligible for getting a mortgage or not and the interest rate they have to pay.
In case you aspire to get the best possible mortgage rates in the market, you need to be certain that you are eligible for it. Following are some of those major criteria, which are evaluated by mortgage lenders and some tips to also improve your present standing:
1. Have a stable job and employment record
There is a strong belief among the banks that there is less risk involved when you can furnish evidence of being in a stable job for a minimum of two years under any single employer. On the other hand, people who are self-employed or running a business may face a tougher time.
All mortgage lenders give preference to loan candidates who can offer proof of steady employment. As such, prolonged unemployment period are not a good feature in your mortgage application form. Similarly, they do not regard your declining earnings favorably while sanctioning your mortgage application. If you have changed your job for a higher earning or position, you also have a good chance of getting the mortgage.
2. Find out the minimum down payment
According to the general thumb of the rule, a borrower should pay the down payment of 20 percent of the total price of the home for availing top mortgage rates. As any mortgage is price adjusted on the basis of certain risk factors, any loan with 5 percent down is regarded to be at a higher risk as compared to 20 percent down leading to a higher rate of interest.
However, that is not the sole reason for saving the 20 percent of your purchase price. If you pay a down payment that is less than 20 percent of the purchase price of your home, you may need to pay private mortgage insurance or PMI.
3. Improve your credit score
The credit score of a borrower is the most crucial factor to determine their interest rate. When your credit score is higher, your interest rate will be lower. You need to hence ensure that your credit score is as high as possible. There are several websites from where you can pull your current credit score.
When you have a high credit score, banks feel there are fewer chances of you defaulting your loan. It also signifies that you need to pay less to borrow your loan. In case you are serious about your credit score, ensure that you do not spend higher than 20 to 30% of your total available credit limit, paying all the bills regularly, and do not carry any credit card debt.
4. Compare more than one lender to get the best rate
It is important to apply with multiple mortgage lenders online so that you can do a comparison of the fees and rates charged by these lenders. In fact, your fees and interest rate may vary from lender to lender. So, it is a sensible decision to get a mortgage from a minimum of three to four lenders. There are some borrowers who skip this step as they feel excessive queries will decrease their credit score. In reality, though, it is not the case. Multiple credit queries are allowed when a customer is shopping for their loan. The process is referred to as “rate shopping”.