Many homeowners focus on their overall home buying budget without paying much specific attention to their mortgage rate. This is unwise, however, since even a slightly lower mortgage rate can make your monthly mortgage payment more affordable and add up to significant long-term savings. Here are three tips for getting a better mortgage rate:
Consider Paying for Points
Your mortgage company may offer a program that allows you to pay for a point reduction. The way this works is you pay a set amount of extra money up front to take points off of your mortgage rate, which can lead to increased savings over time. This option may make sense for you if you have a lot of money saved up in addition to your down payment funds, but it's a good idea to have your mortgage broker go over the numbers with you to be sure.
Don't Be Tempted by a Low Introductory Adjustable Rate
First-time home buyers are often confused by the difference between a fixed rate mortgage and an adjustable rate mortgage (or ARM). An ARM will often start out at a lower rate, but after a specified period of time passes, the rate then fluctuates based on the market, which can result in your monthly mortgage payment becoming unmanageable during times of higher average rates.
A more conservative approach that saves money in the long run is usually to lock in a reasonable fixed rate mortgage now, and then consider refinancing in the future if rates go down.
Don't Neglect Your Credit
Credit has a huge impact on the mortgage rate you're offered, with home buyers with higher credit scores getting better rates and, therefore, having to pay less money for a home of the same price over time. If your credit could use some improvement, you may decide to hold off for a few months or even a year before buying a home.
Keep in mind that this approach only makes sense if you use the extra time to dedicate yourself to boosting your credit score, perhaps by seeking the help of a non-profit credit counselor, paying down debt to reach a better debt-to-income ratio, or disputing inaccurate items on your credit report.
By incorporating these tips into your home-buying strategy, you can ensure that you get the best possible deal on your mortgage rate. Start by meeting with a qualified mortgage broker to go over the best options for your specific scenario.