While mortgage rates in general are set by the government, the rates on individual loans vary a bit depending on your credit score and other factors, including your chosen lender. Even a minor difference in your mortgage rate can either cost you or save you a significant amount of money over the life of your loan. For this reason, it pays to put extra effort into securing a lower rate when purchasing a home. Here are a few ways to get a lower mortgage rate:
Focus on Cleaning Up Your Credit
Your credit score is the biggest factor in determining your mortgage rate, so it pays to spend time improving your credit before you buy a home. Spending a few months paying down balances, having incorrect items removed, and negotiating to settle old collections accounts can all lead to quick increases in your credit score.
A hack for improving your credit is to have your significant other or parent add you as an authorized user to a credit card they have. This works well as long as they have an account in good standing with plenty of available credit. They don't even have to give you a physical card since you are only being added to the account to boost your credit score.
Shop Around for Mortgage Loans
Instead of signing paperwork with the first mortgage lender who approves you, it's wise to shop around. When you apply for multiple mortgage loans within a few weeks of each other, your credit won't really suffer because the FICO system has a built-in way to recognize that you are simply rate shopping. Research mortgage lenders who get good reviews from borrowers, and then apply for several at once to see who offers you the best rate and terms.
See if You Qualify for a Government-Backed Loan
Certain types of mortgages, including VA loans and FHA loans, are backed by the government and typically come with lower mortgage rates. As an added bonus, these loans often require much lower down payments than conventional loans, making it easier overall to buy your home. You may qualify if you are a first time home buyer, are current or former military, or meet other set criteria. Keep in mind that you should still pay the biggest down payment you can afford, since this will lower your overall mortgage amount.
Taking the time to implement these steps will help you snag a lower mortgage rate, which in turn will help you save money on your mortgage each month. For more information and options, contact a mortgage company, such as JRT Mortgage, directly.