Tips for Getting the Lowest Mortgage Rate

 This time last year the 30-year mortgage rates were just over 3%, but they are rising and now are over 5%. Professionals in the industry say that we will see more rate increases throughout the year. Here are some tips from the experts on how to make sure you get the best mortgage rates for your home.

1. Raise your credit score as much as possible

The higher your credit score, the lower your interest rate. LendingTree's data shows borrowers with credit scores of 760 or higher were offered an average APR that was 16 basis points lower than the average rate for borrowers with scores between 680 and 719. A basis point is equivalent to 0.01% and therefore one hundred basis points equals 1%.

Always know your credit score. Take a look at your credit report and make sure there are no errors. In order to raise your score, you should pay your bills on time and reduce your amount of debt. When you decide to get a mortgage, do not apply for too many new credit lines at the same time.

2. Get your finances in order

Your credit score is just one of the things a lender will take a look at. In order to make sure you are able to repay the loan, a lender will delve deep into your finances. Before they do this, you want to make sure you have the entire picture of your income and you will want to pay down any major debts.

To do this, you will need to know your debt-to-income ratio (DTI). Your DTI is the total of your monthly debt divided by your gross monthly income. A lender will want this figure to be 43% or less of your assets. Prepare a record of your steady income by collecting your pay stubs for a 30-day period as well as your W-2s from the past two years. If you are self-employed, you will also need to submit profit-and-loss statements along with your tax returns.

3. Save big for your down payment

You will want to make the largest down payment possible. The more you put down upfront the lower your interest rate. You will also want to make sure you put down at least 20% to avoid PMI. PMI stands for private mortgage insurance, which is around .05% to 1% of the loan amount.

4. Get quotes from 3-5 lenders

Shop around for the best deal. According to Greg McBridge, chief financial analyst at Bankrate, you should compare around three to five lenders to see who will offer you the best rate and other incentives.

“Be sure to look at closing costs, fees, points and tax credits. This can get a bit overwhelming, so if you have a financial planner, be sure to include them in the discussion,” says Jen Grant, certified financial planner at Perryman Financial Advisory.

“Gather all your rate quotes on the same day. Rates fluctuate daily and lenders should be able to give you their best rate out of the gate,” says Denny Ceizyk, senior staff writer at LendingTree.

5. Lock in the rate

This is important especially when rates are rising. Locking in your mortgage rate early on means your lender can’t raise your interest rate between the time you apply for a loan and the time you’re approved. That way, should the market fluctuate during the application process, you’ll be spared from paying higher interest rates if they go up.

6. Weigh the pros and cons of buying points

Discount points can be used to reduce interest rates. They are fees that you pay upfront to reduce your interest rate on your mortgage. One point usually costs around 1% of your mortgage amount. One point can lower the interest rate by one-eighth to one-quarter of a percent. “The lowest rates quoted often come with mortgage points, a minimum loan amount requirement or a certain amount of equity,” says Ceizyk.

7. Consider first-time buyer programs

First-time home buyer programs include aids such as down payment assistance, funds available for repairs and remodeling, no-interest second loans and reduced interest rates. These programs are used to lure first-time home buyers to certain areas. FHA loans, USDA loans and VA loans are common for home buyers with lower credit and smaller down payments.

8. Apply for a shorter loan term

Shorter term loans (such as a 15-year loan) can offer better rates than loan term loans (such as a 30-year loan. “Lenders price loans based on risk. If you can pay your loan off faster at a higher payment, lenders reward you with a lower payment because as your balance is paid down, there’s less risk you’ll default,” Ceizyk says.

If you are in the market for a new home, turn to a Realtor in your area. A Realtor can not only help you find the right home for the right price but can also lend a hand in finding the right mortgage lender.

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VA Loans and How They Work

Veterans are a big part of our community in the United States. The country honors these men and women who have served in the United States Armed Forces in many ways. One example is through VA Loans for veterans who would like to purchase a home. A VA Loan is provided by private lenders and is partially guaranteed by the Department of Veterans Affairs.

VA Loans are a great way for military borrowers to obtain a mortgage. They have been helping military families purchase a home since 1944. If you are interested in purchasing a home through a VA Loan here is what you need to know.

According to veteransunited.com, “A VA loan is a $0-down mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs (VA). Eligible

borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage.”

Unlike conventional mortgages, VA Loans are partially backed by the Department of Veterans Affairs (VA). Lenders who originate the loans have more confidence with this guarantee from the VA and are able to offer $0 down financing and many great rates and terms.

There are many ins and outs of a VA Loan. A borrower can use full VA entitlement as many times as they would like to if the loan is paid off each time. You can have more than one VA loan at a time and even obtain another VA loan if you lost one to foreclosure.

VA Loans are mainly used for properties that are “move-in ready” and are not usually used for a fixer-upper or a property such as a working farm. They can only be used for a primary residence and not for investment properties or vacation homes.

Even though a VA Loan does not require mortgage insurance, you will be required to pay a mandatory fee. The VA Funding Fee enables the VA to keep VA Loans available and can be paid all

at once or rolled into the loan amount. The VA loan entitlement will not let you get a loan with just any co-borrower. You can find some lenders who lend a joint loan. One of the great benefits of a VA loan is there is no prepayment penalty. Making an extra payment or adding money on top of your monthly payment is not penalized like with some conventional mortgages.

If you are a military veteran and would like to obtain a VA loan, here are the steps to the process. Before you can be approved for VA loan entitlement, you must be prequalified for a loan. A lender will be able to prequalify you for what you can afford based on income, credit, entitlement and any other financial factors they require. Once a lender prequalifies you, then you must be preapproved. This is the step in the process where a lender will verify income and your financial information. Once preapproved, the lender will give you a preapproval letter. When searching for a home and placing an offer, you must make sure that the home is VA loan approved.

Once you place your property under contract you will begin the VA appraisal. The VA appraisal is a requirement to make sure the property under contract is of fair market value and meets the VA requirements. When the VA appraisal is cleared you will be able to close on your new home.  Remember when purchasing a home, VA loans represent the most powerful lending program on the market for military borrowers.


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