Photo Credit: © JohanH
Spend a few minutes paying attention to national housing and finance news, and you’ll hear the same information repeated over and over again: “Mortgage rates are at or near historic lows. Buy a home now before rates go up!”
This is good advice, but the reality is that not everyone qualifies for the absolute lowest mortgage rates. Just because you see the current rate is 3.75 percent or 3.89 percent doesn’t mean that’s the rate a lender will offer you.
If you’re willing or able to wait before you buy, you can qualify for better mortgage rates. There are two very specific things you can do to get the best rate and pay less interest when you buy a home.
Improve Your Credit Score
Great credit scores are around 700 and up. Most lenders give the best rates to buyers who have very high numbers. To be clear, even with a credit score of 580 or 600, you can qualify for a mortgage, but this is about getting a better interest rate to help you save money over the life of your mortgage.
- Check your credit score to see where you’re at before you talk to a lender.
- Get a free copy of your credit report (something you can do once a year) to make sure there are no errors on it and there isn’t old debt you forgot to pay.
- Work to lower your debt by paying off or down credit card bills, old past due amounts, and loans.
- Don’t close any accounts with a zero balance. Leave them alone.
- Don’t open any new accounts, either. Each time you open a new account, your credit score will temporarily go down.
- Pay on time every month. If you haven’t been doing this, make it a priority.
- Contact any companies that are reporting errors on your credit report – past due amounts you’ve paid, money you don’t owe, etc. Get those removed as soon as possible.
Depending on how low your credit score was to begin with, this may take a few months to a year or more.
Shop Around for Your Lender
Not every mortgage company offers the same types of loans or even the same interest rates, depending on your credit score. While most people pick one lender, get pre-approved, and then start house-hunting, it may be worth the extra time to talk to multiple lenders. You may be offered a loan with a lower down payment requirement, a better interest rate, or lower fees – or all three. Some lenders offer loans for condos that others don’t. Some lenders don’t work with certain loan programs. They all have proprietary loan programs specific to their company. By comparing companies, you’ll be able to narrow down your option to the one that costs you the least amount of money.
Buying a home isn’t just about finding a house to raise a family in or the perfect backyard or neighborhood. This is a big financial decision and you shouldn’t pay anymore than you have to. Taking care of your finances and shopping around before you start looking for a home can save you thousands of dollars and possibly buy a nicer home than you originally thought you could.
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