5 Ways to Get a Great Mortgage Rate

Interest rates have reached serious highs and show no sign of sliding way back down in the foreseeable near future. This might make it feel downright impossible to get a decent mortgage rate – or to even buy a home, period.

While volatile interest rates might make it seem like a risky endeavor, getting a mortgage loan can be done if you shop within your means. You can set yourself up for success in finding a decent mortgage rate if you play it smart and think about utilizing a Top Mortgage Broker in Penrith, or a broker closer to your location. How much money you pay during the life of your loan and how much you pay each month depend on your mortgage rate. Checking in on key factors – such as your credit score and building a high down payment – can help you get a desirable rate.

Here are a few tips for getting the best mortgage rate available:

Raise Your Credit Score

A low credit score doesn’t automatically get you disqualified from a loan, but it can lead to more expensive borrowing terms. Your credit score is how lenders determine your risk factor, as a type of benchmark for determining an individual’s ability to pay off their loan. The higher your credit score, the more likely a lender is to see you as a borrower who won’t default.

A score of 620 or higher is ideal for consideration for a conventional mortgage loan. The best mortgage rates, however, usually go to people with credit scores of 740 or higher.

Establish a Steady Employment Record

Lenders are going to see you as being less likely to default if you have been consistently employed and earning money for at least two years. You will have to show paystubs from a 30-day period (at the very least) prior to your mortgage application as well as your past two years’ W2s. Commissions or bonuses will also need some proof.

If you’re self-employed or work several part-time jobs, proving your income will be more challenging – but it can be done. Business records and tax returns can help. If you are just returning to the workforce after a break or are a recent college grad just getting your career going, you can go in for a mortgage with a formal job offer. It will need to include your rate of pay. If you have gaps in employment, you will have to explain them. The longer you’ve been unemployed – like six months or more – the tougher it is to get approved.

Stash Cash Away for a Downpayment

The more money you can put into a down payment, the lower your mortgage rate might be. If you have enough cash on hand for a 20 percent down payment, you can get some low mortgage rates. Lenders will accept lower down payments, sure, but you will likely have to pay private mortgage insurance.

For first-time homebuyers who can’t swing a 20 percent down payment, there are grants, programs, and loans directed at your demographic. Check each program for eligibility.

Learn About Your Debt-to-income (DTI) Ratio

A debt-to-income (DTI) ratio pits how much money you owe against how much money you make, comparing your total monthly debt payments against your gross monthly income. The lower your DTI ratio, the more attractive you are to mortgage lenders since it means you’re more likely to afford a new loan payment.

For a conventional loan, the max DTI is 45 percent; the max for FHA loans is 43 percent. Some exceptions – such as having a large amount in your savings – can be made. If you’re currently in debt, you will need to get out of it as much as possible to improve your DTI ratio.

Compare Rates and Terms from Multiple Lenders

There are different terms and rates for mortgage loans. A 15-year fixed-rate mortgage is preferable to the 30-year fixed-rate mortgage if you have a good income and plan on remaining in your new home for a long time. You’ll pay your home off sooner but will have higher monthly payments. This is also a good option for those refinancing current mortgages.

Since rates are still high, consider an adjustable-rate mortgage (ARM). You start with a fixed rate for the first five to seven years of the loan, which is often lower than what comes with a fixed-rate mortgage. Afterward, you switch to an adjustable rate. When rates fall, you can refinance an ARM loan into a fixed-rate mortgage.

Also, consider looking into USDA loans, VA loans, and FHA loans if you need the extra help and qualify. You will also want to look at mortgage rates from several lenders and check with your credit union or bank as well.

While the housing market has been bonkers the last few years, it is possible for you to get a great mortgage rate. You can get a mortgage through District Lending and start on your journey of homeownership.