If you’re tired of renting and you want to start building wealth for the future, there has never been a better time to purchase a home for you and your family. Interest rates are at an all-time low, and as many housing markets experience a drop in prices, ownership is becoming more affordable.
However, low rates and prices aren’t the only reasons to jump into homeownership. Buying a house is comparable to building a long-term savings account. Homes increase in value over time, and as you pay down your mortgage loan, the property gains equity. Equity can be used to finance future projects, and once you’re ready to downsize, you can deposit proceeds from the home sale into a savings account and enjoy a nice financial cushion.
If you’re ready to buy a home, don’t just focus on price. Getting an excellent interest rate on your home loan also impacts your payment. The lower your rate, the less interest you pay, and this can create a more affordable mortgage.
1. Improve credit score.
Improving your credit score not only helps you qualify for a home loan, it can impact the interest rate you receive on the loan. Unfortunately, some people apply for mortgages without checking their own score and credit report. This is dangerous. If problems exist in your credit past, a lender may deny your application or charged a higher interest rate.
To fix your credit score, make sure that you pay your bills on time every month. Likewise, develop a strategy to pay down your consumer debt. This includes credit cards and personal loans
2. Go for a shorter long term.
A 30-year mortgage term will lower your monthly payments, but if you’re interested in getting the best possible interest rate on your home loan, choose a term that’s shorter. For example, people who select a 15-year or a 20-year mortgage loan typically qualify for better rates.
3. Compare lenders.
Don’t put all your eggs in one basket. Interest rates can vary greatly by bank. Because of this, always get a free mortgage quote from at least three banks. There is never an obligation to use a particular financial institution so don’t worry about shopping around. Comparison shopping is the best way to find your best options, and the process doesn’t take long. In fact, there are websites that let you compare the best home loan rates for each bank and best of all you don’t even have to leave your desk!. And when you shop for a mortgage loan, all inquiries that occur within a 30-day period count as a single inquiry.
4. Pay your settlement costs
If you need to lower your out-of-pocket expense, you may ask your lender to lower or waive certain fees. Some lenders are willing to negotiate closing costs. Understand, however, that this often results in a slightly higher interest rate. Although this provision helps you avoid a huge upfront cost, it also increases how much you pay over the length of your mortgage term.
5. Increase your down payment
Down payments prevent many people from buying a house, and most home buyers can only put down the minimum. But if you have extra cash in the bank, consider putting down a larger amount.
A larger down payment not only jumpstarts your equity, it also gives you a little negotiating power. Mortgage lenders prefer applicants with large down payments. Borrowers are less likely to default if they have a greater stake in the property. For this reason, a larger downpayment can help you snag a better rate. The more you put down, the better – aim for 20% or higher.
6. Add a cosigner
If you’re buying your first house and you don’t have a long credit history, using a cosigner can help you qualify for a home loan, plus get a good interest rate. The house is yours, but the cosigner is equally responsible for the mortgage debt. If you default on the mortgage payment, this can damage your cosigner’s credit history, plus the lender will go after him for payment.
Buying a house is a big decision, and the same way you shop around to get the best deals on clothes and electronics, it only makes sense to shop around and find the best mortgage rate. Know your options and make a decision that will save you money.