Getting a good interest rate on a home purchase should not be a struggle. Your interest rate can save you thousands of dollars over the life of the loan and make your monthly payments lower. There are ways you can prepare yourself to be able to take advantage of the Lenders giving you the best rates possible on the current market.
At GetApprovedLenders.com, we’ve provided some major areas below that will help you understand what is needed for you be in the best position possible so you don’t have to ask “How do I get the best interest rates?” – you’ll know and be ready for it.
Our goal is to help you get approved, get funding and move into your new home and/or build real estate wealth. Some of our buyers have started a year in advance, preparing their financial standing and credit worthiness to get the best possible terms for their home loans. Start with us today!
1. Your Credit Score
Lenders always use credit score as a benchmark in deciding a person’s ability to repay the debt. The higher the score, the higher the likelihood that the borrower will not default. A lower credit score won’t automatically ban you from getting a loan, but it can be the difference between getting the lowest possible rate and being offered less favorable terms.
In general, the more confident the lender is in your ability to repay on time, the lower the interest rate they’ll offer.
To improve your score:
- Pay your bills on time, don’t miss any payments
- Pay down or eliminate high credit card balances
- Make sure card balances are no more than 30 percent of your available credit limit
- Check your credit score with free online tools, like your online Bank tool or CreditKarma
- Get your annual free Credit report and look for any mistakes. If you find errors, work with the Credit Bureaus to clean them up before applying for a mortgage.
2. Down Payment amount
Putting more money down on a property can help you obtain a lower mortgage rate, especially if you have enough liquid cash to fund a 20%-30% of the purchase price.
For a Conventional loan Lenders do accept a lower down payment, but if it’s less than 20%, you’ll have to pay private mortgage insurance (0.05% – 1% of the loan amount annually), which increases you monthly payment, eating up all those interest rate saving you might be getting.
A lot depends on the type of property that you’re buying. Is it a house, condo, multi-unit or a townhouse? When you’re getting a Condo, very important thing to remember is that the Lender will have to approve not only you as a Borrower of a Loan, but also HOA that manages the condominium. Condo has to be “warrantable”, so the HOA will have to have reserves and sufficient insurance policy to cover for all unexpected situations. In order to get an easier approval from the Lender we suggest putting 25% down payment on condos to avoid vigorous check of all HOA’s financials and to save you the headaches of looking for another property if the one you picked is not up to Lender’s standarts.
3. Record of employment
You’re more attractive to Lenders if you can show at least two years of steady employment and earnings, especially if it is from the same employer.
- Are you a W2 employee? -> We need to see your 2 years of W2s + 30 most recent days of paystubs
- Are you earning as 1099? -> 2 years of 1099 statements + 30 most recent days of checks/ proof of direct deposit
- Self-employed? -> 2 years of Business & Federal Tax Returns + YTD statements from your CPA
If you have all your documents in order (among other factors) and sufficient capacity for a mortgage payment every month, you can potentially qualify for a better interest rate, as demonstrating stability increases your chances of qualifying for the best program each Lender offers.
4. Go for a 15-year fixed-rate mortgage
If low interest rate is your main priority, you might want to consider a 15 year fixed-rate mortgage.
While 30-year fixed mortgages are the most common types, if you think you’ve found your long-term home and have a good income to support a higher monthly payment, going with a 15-year mortgage loan might be for you. The interest rates are lower than 30-year fixed and you will pay off your home in half the time!