In Q1 of 2019 alone, there was more than $63 billion worth of new mortgages approved in the United States.
Hopeful homebuyers across the US are taking advantage of the low mortgage rates and so should you. Just because rates are low doesn’t mean that you can just go out and get the first mortgage rate you find.
That’s why we’re talking about how to get a lower interest rate for your mortgage. Keep reading to learn how to reduce your rate.
How To Get a Lower Interest Rate
You might know that you should negotiate mortgage rates, but how do you go about it? Let’s find out who is best placed to negotiate and how.
1. Compare Rates With Multiple Lenders
You should shop around to get quotes off multiple lenders before choosing. Don’t be scared off by rumors that asking around will affect your credit score. This isn’t true.
FICO allows you to do something called “rate shopping”. This means that consumers have a 30-day window whereas many mortgage lenders as possible can pull their credit without it negatively affecting the score.
You should get around 4-5 quotes to see a range of options. This is because your interest rates and fees will differ with lenders.
If you’re unsure about the process, make sure you’re asking the right questions.
2. Maximize Your Credit Score
The most important thing you can do to get the best rates is to increase your credit score. A credit score is the biggest factor in determining your mortgage rates. The higher your credit score, the lower your interest rate.
You can check your credit score for free online and that also won’t affect your credit.
If your credit score is low, there are things you can do now to try to improve it quickly before shopping for rates.
Pay Off Negative Balance
The amount of credit you are using on your credit cards is vital in creating your score. It’s called a “credit utilization ratio” and this ratio is 30% of your FICO score.
So if you’re carrying debt then you need to pay it off ASAP. If you can’t afford to pay it off completely then try to get your debt under 15%.
Get Added as an Authorized User
Do you have a friend or relative with a long-standing credit card account that has a positive payment history? Have them add you as an authorized user to their account.
When you’ve been added onto the account then that account’s history will appear on your credit report. They are then figured into the scoring algorithm and will increase your score.
You don’t have to have a card and they can remove you as an authorized user after you close on your home.
Try to Remove Collection Accounts
If you have a collection accounts on your credit then you need to try and get them removed.
You can dispute the negative account with the Credit Bureaus directly who will then have 30 days to verify the account. If not they must remove the account from your report.
Another way of getting collection accounts taken off your report is to negotiate a “pay for delete”. This is an agreement with the collection agency that they will remove a collection account if you pay the amount owed.
3. Negotiate Using Rate Quotes
Now that you have your quotes then you need to use the lower rates to negotiate with the other lenders. Go back to them and get them to lower the rates or fees based on the lower quote. Do this with each of them until you’re sure you have the best rates you can get.
Some things to consider:
Are You in a Position to Negotiate?
You can always negotiate a little, but based on your score you could be in a stronger position than you think. Mortgage rates work on “risk-based pricing”. That means if you’re low risk, with a good high credit rating then you are in a great position to negotiate. Mortgage lenders love low-risk applicants so if your rating is great then you’re in luck.
Paying Points at Closing
You can actually pay discount points on your mortgage upfront to reduce the interest rate.
For example, if a lender offers a rate of 4% with no points, you might choose to pay one point at closing. This would reduce the rate to 3.75%. Two points would bring it down to 3.5%. You would be using the prepaid interest to negotiate a lower mortgage rate.
4. Apply For Government Loans
There are all sorts of initiatives and certain programs for first-time buyers but have you considered government loans?
They are slightly riskier than normal mortgages but the rates are typically lower and could be a good option.
Government loads include:
FHA Loans: Best for people with a credit score of less than 620.
VA Loans: Best for veterans
USDA Loans: Best for people in rural areas
Do your research and learn about all of the options available to you.
5. Look Into Adjustable Rate Mortgages
If you are looking to sell in the next 5 years then there is another option to save you money. Instead of opting for fixed-rate you could look into adjustable-rate mortgages.
You should research 5/1 ARM loans, which have low rates fo the first 5 years. Then you sell before the rates increase. The 15-year option has typically better rates than the 30 years, so check them out. If the monthly payment is too high then just stick to the 30-year rate. It’s just another option to explore.
Go Negotiate Your Rate
Knowing how to get a lower interest rate could save you tens of thousands of dollars on your mortgage payments. Get shopping, increase your credit score and learn to negotiate.
By arming yourself with the correct information you put yourself in a great position to negotiate and get the lowest rate possible. The best mortgage rates are not just reserved for the highest credit rating. They’re there to be found when you know how to get the best deal.
If you’re looking to buy your home, why not check out our mortgage rates today?