A home purchase is one of the ultimate American dreams of many — or at least according to 74% of adults in the U.S. When you have a home under your name, it gives you a sense of security and stability that can help you relax and feel comfortable. It’s also an excellent investment, as the value of your home will likely appreciate over time.
However, many people’s biggest roadblock is affordability. Many people, especially millennials and Gen Zers, have lots of student loans and other debts that make it challenging to save up for a down payment on a home. And even if you can save up, the monthly mortgage payments can be pretty high.
The best way to ensure your monthly mortgage payments are affordable is to get the best mortgage rate possible. Here are five ways that can help you get the best mortgage rate:
The first tip is to shop around. There are a lot of lenders out there, and each one of them offers different mortgage rates. Comparing rates from multiple lenders is important to get the best deal possible. You can do this by going to a lender’s website and requesting a quote or by using a mortgage broker who will do the shopping around for you.
Once you find at least three reputable lenders, compare the mortgage rates they offer, check their online reviews, and read the fine print to make sure there are no hidden fees. A reputable mortgage lender will be transparent about their rates and fees. They will help you navigate the complicated parts of getting approved for a mortgage and ensure they stay updated with the latest rates and programs to ensure you enjoy the right loan based on your situation.
Build Your Credit Score
All lenders would consider your credit score when determining your mortgage rate. The higher your credit score, the lower your interest rate will be. So, before you even start shopping for a home, it’s a good idea to start working on your credit score.
There are a few things you can do to improve your credit score, such as:
- Paying all of your bills on time
- Keeping your credit card balances low
- Don’t open too many new lines of credit at once
- Checking for errors on your credit report and dispute them
By starting with your credit score, you can position yourself to get the best mortgage rate possible from lenders. Even if you currently have a low score, you can still qualify to lock in a lower interest rate by taking some time to improve your credit score.
Save for a Large Down Payment
The size of your down payment will affect your mortgage rate. If you can make a large down payment, you will be less of a risk to lenders and help you get a lower interest rate. A down payment of 20% or more is ideal, but if you can’t reach that amount, don’t worry. There are still plenty of options available to help make homeownership more affordable.
For example, low down payment mortgage programs require as little as 3% down. The downside is that you will likely have to pay for private mortgage insurance (PMI) if your down payment is less than 20%.
Look for Government Programs
Many first-time home buyers skip looking for government programs because they think it’s too much paperwork or only available to low-income earners. However, many government programs can help you get a lower interest rate on your mortgage.
For example, the Federal Housing Administration (FHA) offers a loan program that allows buyers to put down as little as 3.5%. There are also state and local programs that offer down payment assistance and help with closing costs. This includes the Maryland Mortgage Program and the Delaware State Housing Authority’s Homeownership First Program.
- The Maryland Mortgage Program offers a 30-year fixed rate mortgage and up to $5,000 for down payment and closing cost assistance. This is an excellent option for first-time home buyers in Maryland.
- The Delaware State Housing Authority’s Homeownership First Program offers up to $5,000 for a down payment and closing cost assistance. This program is available to first-time home buyers and buyers who haven’t owned a home in the past three years.
These are just a few programs to help you get the best mortgage rate possible. It’s essential to do your research and compare rates from multiple lenders before making a decision. By taking these steps, you’ll be on your way to finding the best mortgage rate and making homeownership more affordable.
Consider Applying for a Shorter Loan Term
The loan term is the length of time you have to repay your mortgage. The most common loan terms are 30 years and 15 years. While a 30-year loan term will give you lower monthly payments, it will also result in more interest paid over the life of the loan. A 15-year loan term will have higher monthly payments, but you’ll save money in the long run.
Suppose you can afford the higher monthly payments of a 15-year loan term. In that case, it’s worth considering because you’ll pay less interest overall. This will also help you build equity in your home faster. If not, you can always refinance your mortgage to a 15-year loan down the road once you’re in a better financial position.
Getting the best mortgage rate possible requires a bit of work, but it’s worth it in the long run. By following these tips and researching, you can save money and make homeownership more affordable. You will also be in a better position to build home equity and pay off your mortgage more quickly.