So you’ve made the decision: you’re ready to buy a home. Like most homebuyers, you know you’ll need to finance the purchase. But how do you get the best mortgage rate possible to maximize that financing? You can save thousands of dollars over the lifetime of the loan just by lowering your mortgage rate by a percentage point. Read on for some tips that can help you improve the mortgage rate you’re offered before you begin the homebuying process.
Check your credit
As most in the home selling business will tell you, your credit score is key to buying a house. The mortgage rate you’re offered will be based on your credit score or FICO score. The higher your credit score, the lower the risk you are are to banks. Your credit score is calculated based on a number of factors that includes the length of your credit history, how much credit debt you currently have and your debt repayment history. The information used is pulled by three major credit bureaus (TransUnion, Equifax, and Experian) so be sure to request and review a report from each agency to ensure that there are no errors being reported that may negatively affect your score. You can ask for a report from each agency once every 12 months from at no cost to you.
Pay down any balances and reduce your credit activity
Debt-to-income ratio is simply how much debt you owe in relation to how much money you have coming in. Financial institutions will also look at your debt-to-available-credit ratio, or how much you are using of your available credit. If either or both ratios are high, you are considered a higher risk. It’s worth setting aside time to add up your various credit lines and calculate how much available credit you have compared to your monthly income. A good rule of thumb is not to spend more than 20-30% of your credit limit. If your debt adds up to more than a third of your income, work to pay down some of the debt, but make sure not to close the line of credit.
Consider the length and type of loan
The length of a home loan can vary, with most loans offered for 15, 20 or 30 years. A shorter loan length will typically be offered with a lower mortgage rate. A shorter loan length will also save you thousands of dollars in the long run, but the monthly payments will be higher. In addition, a loan with an adjustable rate that can change during the life of the loan can offer a lower initial mortgage rate than a fixed rate loan where the rate does not change. Just be aware that the adjustable rate may potentially go up in the future (but it may also come down). The best way to find out the right loan for you specifically is to…
Talk to a loan originator
Everyone’s finances and needs are different, which is why individual discussions with a loan originator are key to finding the best rate. A knowledgeable loan originator can tell you if you qualify for special loan programs offered through the Department of Veterans Affairs, the Federal Housing Authority and the USDA, as well as special loan offers for first time homebuyers. These specific programs can offer lower mortgage rates to those who qualify.
When you are ready, contact us here at Open Mortgage today and we will work to find you the best mortgage rate possible, so your hard earned money can go further towards the home of your dreams.

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