Looking for a new home is a very exciting time in a person’s life. However, it is also one of the biggest and most expensive decisions in your life. As a result, there is a lot to do and consider. You need to research neighborhoods, evaluate wants and needs, and more.
Not only that but unless you have a nearly-endless supply of money, you will likely need to apply for a mortgage. In an effort to help you get the best mortgage rate possible, this article will look at a couple of things you should do to get the most affordable rate you can.
Watch Your Credit Score
Your credit score doesn’t often come into play during your day to day life, but when you are looking to get a loan or mortgage, it is a huge factor. A low credit score could be an indicator to the lender that you are risky, which may lead them to give you a higher interest rate to protect themselves.
Credit scores can range from 300-850, and anything above 700 is considered good. While a credit score and the overall report aren’t the only factors, they are a big one and you should ensure your credit is in good or decent condition before applying for a loan.
Don’t Be Afraid to Shop Around
Wherever you are located, there is a good chance that there is more than one option for getting a mortgage. Instead of simply going with the first person, bank or company that you visit with, you should be sure to look around to other options and compare rates, and they will differ with each potential lender.
While you might just think to look at brick and mortar locations locally, that isn’t always the best way. In fact, there are online lenders that specialize in providing people with a USDA home loan or any other type of mortgage they desire. These online lenders can often provide easier applications with quicker responses as well.
A Large Down Payment Will Help
While it isn’t always easy to save up a lot of cash for a hefty down payment, it will definitely help you get a better interest rate on your loan. A large down payment will show a lender that you are financially healthy and they will be more receptive to working with you.
As far as how much you should save for a down payment, that will depend on your unique situation. In the past, 20% down used to be the standard, but as homes got more expensive, most people weren’t able to save up that much. Reaching that 20% is still ideal, but anything over 10-15% or so should still get you decent rates compared to only having a down payment of 5% or so.
A Solid Debt to Income Ratio
Having a low debt to income ratio is a good way to show mortgage lenders that you can afford to take on more debt and won’t be a huge risk to miss your payments. Your debt to income ratio is all of your monthly debts divided by your gross monthly income.
So you could imagine if your debt to income ratio is something like 70%, then you don’t have a lot of room for any extra debt, so lenders might be reluctant to provide you with a mortgage. 43% seems to be about the highest debt to income ratio that can be and still qualify for most mortgages, but most lenders like it much lower to give you the best rates. Some might consider working with those who have a debt to income ratio over 43%, but they will often be a small creditor or offer a higher-than-normal interest rate.