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Taking these nine steps can make a big difference in the price of your mortgage.
- Mortgage rates repeatedly hit record lows during the pandemic.
- Interest rates are now much higher, averaging over 5.00% for 30-year fixed rate loans.
- Homebuyers have to shop more carefully and take more steps, such as paying off debt and organizing paperwork, to get an affordable loan.
Check out Ascent's picks for the best mortgage lenders
In the midst of the pandemic, qualifying for an affordable loan was a no-brainer for most homebuyers. With interest rates repeatedly hitting record lows and reasonable financial qualifications, It was possible to get a 30 year fixed rate mortgage for less than 3.00%.
But things have changed. Interest rates have risen significantly, with the average interest rate for popular 30-year loans he exceeding 5.00%. This clearly increased the cost of borrowing.
That doesn't mean that would-be homeowners should give up on getting an affordable mortgage. No one can get him an interest rate closer to 3.00% anymore, but by taking these 9 key steps you can get the lowest cost loan possible in today's market.
1. Improve your credit score
Creditworthiness is one of the most important factors a lender considers when setting interest rates. Credit he could be a more competitive borrower if he could improve his score. A score above 720-740 will help you get the best rate available at the time you are renting.
To improve your credit score, use less available credit, become an approved user of someone's credit card with a reliable credit history, or ask your lender to voluntarily remove negative information. You can do it by request. Pay on time, but have made a mistake or two in the past.
2. pay off the debt
Paying off your debt will improve your credit score and help you get affordable loans. It also improves the debt-to-income ratio, another of his key metrics that the lender confirms. This is the ratio of debt to what you earn. Lower interest rates (meaning less debt) are seen as less risky borrowers, making rates more competitive.
3. Set a budget
You should set a realistic budget for how much you can borrow. This allows you to qualify for more competitive loans as you reduce your risk to lenders by only borrowing amounts that you can easily repay. If you can borrow less, your mortgage will be more affordable than if you take out a larger loan, even if you can't get the lowest interest rate.
4. Organize your documents
Lenders demand a lot of paperwork, so it's a good idea to have your approvals and move quickly before interest rates rise further. Tax returns, pay slips, bank statements documents, and other proof of assets.
5. Decide on the right loan type
There are various types of home loans. For example, a 15 year loan is an alternative to his 30 year loan. Interest rates are lower, but monthly payments are higher due to a shorter timeline to pay off the loan in full. Carefully consider the different period lengths to make the best choice for your needs.
6. Get quotes from multiple lenders
Interest rates and loan terms vary from lender to lender, so you don't just want to get a first loan that someone is willing to offer. At least he should get mortgage quotes from three different mortgage lenders, and ideally more. Online lenders, local banks, national banks and credit unions are all worth noting.
7. Get pre-approved
Once you find an affordable loan, get pre-approved. This means finding a suitable home and submitting all your financial details for approval, provided you don't make any major changes to your financial situation.
Once pre-approved, you usually have the option to lock in the current rate offered at that time. This will avoid any rate hikes that may occur in the coming months.
8. Find the perfect home
You need to make sure the lender finds a home that allows you to rent it for purchase. Specifically, we look for affordable housing within your budget and taking into account market conditions. Lenders require an appraisal. If a professional evaluator says the house isn't worth as much as you offered, you may have trouble getting final mortgage approval.
9. Avoid mistakes before closing
Finally, you should avoid doing anything that puts your mortgage in jeopardy before closing. Avoid changing jobs or borrowing money. Both are red flags for lenders to worry about.
By following these nine steps, you should be able to get a good mortgage, even if interest rates are a little higher than they used to be.
The Ascent's Best Mortgage Lenders
Mortgage rates are at their highest levels in years and are expected to continue rising. To ensure the best possible rate while minimizing fees, it's more important than ever to check rates with multiple lenders. Even a small difference in rates can save you hundreds of dollars in monthly payments.
That's where Better Mortgage comes in.
Get pre-approved in as little as 3 minutes, without rigorous credit checks, and lock your rates anytime. another plus? They do not charge origination fees or lender fees (some lenders even charge him 2% of the loan amount).