March 27th, 2020 10:49 AM by Jackie A. Graves
homebuyers have the advantage of shopping in a low mortgage-rate environment,
as current mortgage rates have
fallen to around 3.73 percent.
But not everyone qualifies for the lowest rates available, or can even qualify
at all for a mortgage or a refinance.
score, down payment and even comparison shopping are all important factors that
play into the rate you receive. Here’s a breakdown of why these things can
prevent you from scoring the lowest rate available and what you can do to
1. Improve your credit score
score is one way lenders try to predict whether borrowers will pay their loan
on time and be able to afford the mortgage payments. Borrowers with excellent
credit scores are rewarded
with the best rates because they’re perceived to be less likely
to default or make late payments. Lenders hedge their risks by increasing rates
for borrowers with lower credit scores.
To get an
idea of the interest rate you might qualify for, start by checking your FICO
score, which is the score lenders use that is based on your credit report.
Consumers are entitled to one free credit report per year from each of the
three major credit reporting agencies: Experian, TransUnion and Equifax. It
usually costs extra to get your FICO score, though many credit card issuers
provide it for free.
example, if you maintain a balance on your credit cards, it will appear on your
report as ‘revolving credit utilization;’ lowering that amount will raise your
credit score,” says Judith Corprew, executive vice president of chief
compliance and risk at Patriot Bank. “Also consider late payments. Remembering
to pay bills on time and in full will help your credit score (not to mention
reduce late fees).”
inquiries on your credit report can also lower your FICO score. Hard inquiries
include loan and credit card applications, and might indicate that you need
money or are at risk of overextending yourself.
apply for credit unless you need it. And definitely don’t apply in the six
months preceding your loan application,” says Adrian Nazari, founder and CEO at
Credit Sesame. “However, you can shop for mortgage rates without worrying about
multiple inquiries because the only way to compare loan offers is to apply with
more than one lender.”
if you see an error on your credit report, you can dispute it. Clearing up
mistakes will also help you improve your score. Credit scores are updated every
30 to 45 days, according to TransUnion, and credit bureaus usually update your
file as soon as they get new information from creditors. So, if you pay off
debts and avoid opening new lines of credit, you might see your score increase
in as little as a month.
2. Make a bigger down payment (or look for low down payment
Bigger down payments can often help borrowers
secure a lower interest rate. The reason is that the loan-to-value ratio, or
LTV, is lower with larger down payments, which reduces how much the lender
would lose in case of default.
another instance of risk-based pricing. Lenders reward low-risk customers with
lower interest rates.
larger the down payment you put forth, the better the odds of lowering your
interest rate and monthly payment,” says Chris de la Motte, co-founder and
president at Simplist. “If you’re not quite at your target number yet, there
are plenty of ways to trim additional expenses — and they can really add up.
Whether it’s pausing the gym membership to run outside and participate free
local classes, or forgoing the daily office cafeteria run in favor of a little
meal prep action, little things can make a big difference. You’ll be there in
said, there are plenty of loans available at low interest rates with as little
as a 3 percent down payment. Look into FHA loans and
programs through banks that specialize in low down payments. And if you want to refinance your
current mortgage, no down payment is generally needed as long as you
have sufficient equity in the home.
3. Compare offers from multiple lenders
shows that shopping around for a mortgage can save consumers hundreds or even
thousands of dollars. According to a 2018 report from Freddie Mac, borrowers
can save “an average of $1,500 over the life of the loan by getting one
additional rate quote and an average of about $3,000 for five quotes.”
Bankrate’s mortgage rate
tables are updated regularly, so you can start by doing your
research online. Be sure to shop at your bank and even online lenders.
that the difference between 8 basis points can save you $140 per month. A
$300,000 mortgage with a 4.5 percent rate will cost $1,520 in principal and
interest per month compared with a 3.7 percent interest which comes to $1,380
per month. That difference adds up over time, so it’s worth taking the time to
improve your score, save for a bigger down payment and shop around for a better
credit is less than stellar, it pays even more to shop. Some lenders will
welcome your business with competitive rates while others may not. Mortgage
brokers are another good way to find a lender if your situation is out of the
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