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How to Get the Best Mortgage Rate When Buying a Home

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How to Get the Best Mortgage Rate When Buying a Home

Save thousands (or more) over the life of your home by locking in a great mortgage rate. Here are ou

A lot of excitement comes with buying a new home. However, buying a home is not always easy. Homes can be expansive, and most people can’t afford to pay for a home upfront. 


This leaves millions of people with the only available alternative which is financing a home using a mortgage. 


If you do your research and take time to weigh your options, you can end up with the best mortgage rate for your home. So, if you're planning to get a mortgage and wondering how to get the best rates, here is a simple guide to help you out. 


Know the Average Mortgage Rate 

To ensure you get a good mortgage rate, you need to equip yourself with some information on the current mortgage rates in the market. With some knowledge about the behavior of the market, you will easily tell if you're being offered a good deal. 


Do your research on the mortgage market by checking surveys which bring out leaders weekly and show their mortgage products. You can also simply ask around. Lenders will not refuse to share this information with you. 


After you know the average mortgage rate, you can start looking for lenders and make your comparisons. Lenders are always looking for customers, so it should be fairly easy to find a few options. 


You can go to the lender's website to see the rates and compare with that of other lenders. After a thorough research, you can now decide on the best place to get a mortgage. 


Be Wary of Very Affordable Rates 


After doing your research and comparing the mortgage rates from various banks, it is now time to make a list of the best rates in the market. You should have a list of the most expensive lenders and the least expensive ones at your fingertips. 


Maybe you already ruled out some possible lenders to walk with in your home buying journey. 


This doesn't mean you should settle for the most affordable lender. Affordability does not necessarily mean best service. You should take more time and consider other costs that these lenders may want from you apart from the interest rate. 


Some mortgage lenders may include larger registration fees with their cheaper rates. Check with the lender to see what additional costs are involved and ask questions so you understand how their services work. 


Do You Want a Fixed Rate or Arm? 


While doing your research, you probably have already discovered that mortgages come in a fixed rate of an ARM. With a fixed rate mortgage, you are locked to a consistent rate for the period you'll be paying the loan. The principal and interest of the loan you pay remain constant throughout the period. 


ARM means an adjustable rate mortgage. These rate changes over time, beginning with an introductory period of a few years in which your loan remains steady. The introductory period usually has low-interest rates, but when the period ends, your mortgage payment rises. 


Because of the low-interest rates during the introductory period, you can easily get swayed to take an ARM. There are always future uncertainties. You don't know whether the rates will fall or rise. If it rises, you're likely to pay higher interest rates than you would if you took a fixed rate. 


Negotiate Lower Rates 


If you don't ask, you definitely won’t get a better mortgage interest rate. If you have decided on the lender that you want to work with, but you still find their rates a little too high, it will not hurt to ask if anything can be done to get a lower interest rate. 


Some lenders may be open to negotiating and offer you an option of paying a larger upfront fee for lower rates. Discounts points can also work out as a negotiation method. These points are what you're going to pay to reduce the rate. 1% point of the loan you take will likely reduce the loan to 0.25%.


This means you're going to pay more upfront and save a little more each month. This method only works for those who are planning to have the loan for a long time because it will take several years for your monthly savings to add up. 


Consider the Closing Costs 


Even though these fees charged by the lender and third parties don't affect your mortgage rate, you should still consider them when deciding to take a mortgage with a particular lender. These fees will still have a noticeable impact on your bank account. 

Closing costs also vary from lender to lender and amount to about 3% of the price of your home. The costs cover the processing and underwriting fees, appraisal fees, and title insurance, among others. To ensure you don't pay too much, ensure you shop around for the lowest fees. 


Find out If There Are Any Special Programs 


Most lenders offer special home buyer programs for their borrowers. Don't forget to check out these programs when shopping for the best lender. Some of these programs may include giving out discounts for first-time home buyers, or lower interest rates if you've been their customer before. 


You are looking for all the alternative options to get a lower interest rate and bring your home ownership nearer. Some states have a state housing finance agency that helps people talking mortgage to get better deals. Check out these programs to see if you're eligible for any. 


Improve Your Credit Score 


Most lenders will look at your credit score to help them decide whether to give you a low rate or raise your borrowing terms. The credit score determines your ability to pay for the loan. If you have higher scores, you are better placed to get a mortgage with low rates. 


So, if you're planning to take a mortgage, you better start working on improving your credit score. You can do this by paying all your bills on time and eliminate any credit card balances. 


Be sure you check your credit score regularly and clean out any mistakesYou don’t want a credit card or a mistake on your credit report to prevent you from qualifying for a loan for a home. 


Have a Good Record 


Lending is a risky process, and lenders take all the necessary precautions to ensure you pay back their loan on time. This means you have to prove that you can pay the borrowed amount. 


To prove that you can pay back the loan, you need to have a record of at least two years steady earning, whether on a business or steady employment. If you keep moving from one job to another or your earning comes from different part-time jobs, it will not be easy for you to get a mortgage. 


Ensure There Are No Fluctuations 


Mortgage rates do fluctuate. After you've applied for a loan and done all the paperwork, you should lock down your rate so that you aren’t affected by rate fluctuation. 


The closing period takes a long time during which your interest rate may rise or fall. If it falls, you'll be lucky, but if it happens to rise, you'll probably be on the losing end. Don't leave things to chance. 


Just ensure you ask the lender to lock your rate after you've signed the home purchase agreement. 


Make a Large Down Payment 


Making a larger down payment reduces the risks for the lender and can guarantee you a low-interest rate. You should get prepared to fund at least 20% of the down payment. 


Paying less than 20% will force you to get private mortgage insurance which can also cost you up to 1% of or the original loan amount every year. If you do the math, you can see it is better to save enough for the 20% down payment.


Making a larger down payment also means paying off the loan sooner and saving some money by getting rid of the mortgage insurance. 


Final Thoughts 


Getting a mortgage to buy a home doesn't mean you're paying less for the house. The mortgage helps you afford the home.  


You will eventually pay for the house in the long run with some mortgage rates involved. With this in mind, you should not be careless when applying for a mortgage. 


Take your time, get well prepared, and do your research and ensure you find the lender offering you the best deal. If you have any doubts, feel free to move on to the next lender until you're convinced that you're getting the best deal. 


Making a decision regarding buying or selling a house is not an easy one. To help you get out of any dilemmas, you can read our blogs concerning home ownership and the real estate market.