How to get the best mortgage rate
With the average rates on fixed-rate mortgages once again breaking the record for all-time lows, it's a good time to think about this.
This post comes from Rob Berger at partner blog The Dough Roller.
The Wall Street Journal had a report recently on how to snag the best mortgage rates. While you've probably heard some of the tips before, I thought it was worth sharing. With this week's average rates once again hitting historic lows and real-estate prices ready to rebound, it's a good time to review the basics.
Repair your credit
We've talked about this before. Improving your credit score is the single best way to save money on everything from home loans to car loans to credit card rates. With a mortgage, a good credit scrore can easily save you tens of thousands of dollars over the life of the loan. The best mortgage rates go to those with a FICO score of 760 or better.
Improving your score is a matter of paying bills on time and keeping the amount of credit you're using to a minimum. That's sometimes easier said than done, but over time your score should improve. You can check out this list of tips on increasing your credit score for more details. (Post continues below.)
Consider shorter loan terms
The WSJ article suggests you opt for a 25-year mortgage as a way to get a lower rate. I actually tried that with my last refinance, but the rate wasn't any lower. In fact, the rate was the same even for a 20-year mortgage compared with the 30-year loan we ultimately chose.
You do, however, save on interest when you go down to a 15-year mortgage.
The downside, of course, is a much higher payment. There are other factors to consider when deciding on a 15-year vs. 30-year mortgage, but it is worth considering as a way to lower your rate.
Get several quotes
This one is simple. It's easy to compare mortgage rates online. In addition, if you are refinancing, it's always worth checking with your bank to see what it can offer. It pays to get at least three quotes, and more is often better.
Increase your down payment
While the WSJ didn't mention this one, I think it's an important consideration. You'll typically get the lowest rates if you have at least a 20% equity cushion. With anything less than that, your rates go up and you'll pay private mortgage insurance. We paid PMI on our first home, and the extra cost goes right out the door. Saving up for a 20% down payment isn't easy, but it will save you a lot of money in the long run.
Here are some additional resources you may find helpful:
- Looking for the best mortgage (via the Federal Reserve)
- How to find the best mortgage rates (via Moolanomy)
- Mortgage Shopping Worksheet (.pdf file) (via the Federal Trade Commission)
More from The Dough Roller and MSN Money:
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