If you are on the hunt for a home, getting a good mortgage deal will be vital in deciding the home you choose- and what you can afford. In the last year, almost 6.5 million homes were sold across the U.S, and mortgage debt has seen record highs as homeowners take advantage of heroically low rates across the board.
Of course, getting the best rates when applying for a mortgage relies on much more than the current market rate when applying.
Taking a few steps to prepare yourself and your finances adequately can not only improve your chances of being approved but also saves money when buying a home.
Check Your Credit Report Well Ahead Of Your Application Deadline
Even today, your credit score and reports still heavily influence the mortgage deal you are offered when applying. While the minimum credit score more mortgages are 620, some may require a score of 660 and upwards. Specific mortgage loans like jumbo mortgages ask for 700 and above. This is because jumbo mortgages surpass the FHFA limits and carry more risk. For 2021, the standard FHFA loan limits were $548,250 except for high-cost counties like Los Angeles where it is $822,375.
To get an idea of your credit record, you can access your report from any of the 3 current credit bureaus by visiting AnnualCreditReport.com. However, while the report is free and provides information like any discrepancies on your current record, it does not give you your current credit score. To access your credit score you can use websites like Experian.com, which provides a breakdown of your credit score for free. It also gives insight into areas where you can improve your credit score as you prepare to buy a home. Timing is key in this process. The earlier you get started, the better chance you have to improve your score to get the best rate possible when you apply.
Keep An Eye On Fluctuating Mortgage Rates When Choosing Your Home Location
Mortgage rates and costs differ by state. Although the difference can be small, this difference can add up to significant savings over the course of a 30-year mortgage term. One factor that influences mortgage rates by states is the rate of foreclosure rate. States with a high foreclosure rate like Delaware have an average mortgage rate of 3.08 percent- higher than the national average of 3 percent. Similarly, Indianapolis mortgage lenders average 3 percent for a 30-year loan. The state currently has a higher than average foreclosure rate but lower than Delaware. Also, more competitive mortgage markets tend to have better mortgage rates. If you are looking for the best mortgage rates possible, do your research on differing rates when narrowing down locations for your home.
Save Up More Than 20 Percent To Avoid PMI Charges
The higher downpayment you can provide when buying a home, the better rates you may be offered as you will be borrowing less money. Lenders will see it as a positive sign since it tells them you are willing to invest more in the home- and they will be funding less of it. Applicants with a larger downpayment can also get a better rate since they often avoid paying private mortgage insurance (PMI). Private mortgage insurance acts as a buffer policy for borrowers with a less than 20 percent downpayment.
Also, keep in mind that lender-paid private mortgage insurance often increases your interest rate as well. A great option for saving more money for a home downpayment is to pursue an additional source of income during the 6-12 months leading up to your applicant. Pursuing a side hustle can earn you extra money, which you can dedicate to increasing your downpayment.
Finally, lenders value employment stability in applicants. Try not to switch jobs in the run-up to applying for a mortgage. Buying a home is a significant financial commitment- possibly one of the largest ones you will make. Taking the time to prepare yourself gives your the best start possible, and the best chance of getting a mortgage deal suitable for you.