Buying a home is a major endeavor with a plethora of facets and decisions to make. Financing is one of the most significant aspects of purchasing a home. The mortgage rate imposed by the lender determines how much the monthly mortgage payment will be. Let’s look into some ways to decrease the mortgage rate associated with your home loan.
Boost Your Credit Score
Lenders consider their various loan programs as products, and these products are driven by the borrower’s credit score. Conventional lenders have a limit to how low a borrower’s score can be to secure a loan.
Most lenders won’t lend to borrowers with scores below 580. If a borrower has a low score, they are charged the highest percentage rate. Adversely, borrowers with credit scores of 720 and above are looked at as having excellent credit. Borrowers with excellent credit are given the lowest rates.
Find the Best Lender
Like looking for the best deal with any other purchase, shopping around will assist with getting the best price on a mortgage. As we mentioned, each lender has their own programs.
A lender’s program will have an interest rate associated with it; some lenders will have more favorable rates associated with their key credit scores tier systems than others. Seek different lenders to make sure you are getting the absolute best deal.
Explore the Loan Types
There are various types of loans that will automatically get you a drastically reduced mortgage rate. For instance, if you are a first-time homebuyer, you can get a loan from the Federal Housing Administration (FHA) with a rate as low as approximately 3%. Similarly, if you are a veteran, the Veteran’s Administration (VA) offers mortgage loans with reduced rates.
Another fine choice from these government backed loans that you can choose to avail when purchasing your first home is a loan backed by the USDA. USDA home loans can have the lowest fees and one of the best rates among these loans depending on the lender. It’s always a wise choice to have multiple quotes and weigh out your choices before you apply for a loan to make sure you get the best financing option for your new home.
Purchase Point Reduction
You can actually reduce your rate by paying more for your down payment. The term “point” refers to a percentage point of the loan amount. Lenders will allow you to purchase point reductions by paying an increased amount upfront. Using a seller closing costs calculator is a way to get a better indication of what your costs will be at closing.
Decrease Your Loan Term
By shortening the length of your loan payback term, you can secure a lower percentage rate. The standard mortgage term is 30 years. On the other hand, if you opt for a 15-year mortgage, you can not only pay your home off in half the time, but you will also save thousands over the life of your loan.
Keep in mind that reducing your loan term will decrease your rate, but it will also give you a larger monthly payment. The savings come by paying down your interest faster.
Obtaining a low mortgage rate is the way to decrease your mortgage payment. As you can see, there are a variety of ways to achieve this. While it is clear that mortgage programs are mostly determined by the credit score of the borrower, you are now able to see some other angles that will help to reduce your rate and, ultimately, your monthly mortgage payment.