When it comes to obtaining a home loan, lower mortgage rates will reduce your costs over the life of the mortgage. Lower rates translate into less interest paid, saving you money on monthly payments.
Here are a few tips to help you get lower mortgage rates:
• Establish and maintain a good credit score. A good credit score shows you have been responsible in borrowing money and repaying it on time, and that you are not overextending yourself financially. Good credit can be an important factors in obtaining the lowest rates and loan fees.
• Put at least 20 percent down on the home. A 20 percent down payment makes banks more comfortable that they will not lose money if you eventually default on the mortgage. Your reward for that comfort is likely to be a low mortgage rate and you’ll avoid having to pay private mortgage insurance.
• Be able to document your income and expenses. Banks won’t loan money any more just on your say-so. Lenders may charger higher fees or rates to borrowers who don’t have the full range of paperwork to document their ability to repay a big loan.
• Shop and compare loan offers and rates. Evaluating several loan offers allows you to select the one with a lower mortgage rate. Compare the annual percentage rate, or APR, of each loan offer. You might have to pay a one-time fee for discount points to qualify for the lowest rates. The APR will include the cost of the fee and any other processing or closing charges in the annual rate.
The federal government’s efforts to stabilize the economy and propel bank lending have helped produce lower mortgage rates. It’s hard to know how long the lower rates will be in effect. Lower mortgage rates are available on both home purchases and refinances.
Banks are still being extremely cautious in approving loans, and not everyone will qualify for the lowest rates. But lower mortgage rates will be offered to many borrowers, so it pays to make sure you are among them.