A house is a major purchase. In fact, it’s typically one of the biggest purchases people make in their whole lives. If you’re like one of the millions of buyers who get a mortgage for their dream home, securing the lowest interest rate possible could go a long way toward saving you money over the lifetime of the loan.
According to national nonprofit American Consumer Credit Counseling, here are five factors homebuyers need to consider to get the best mortgage rate:
Good credit score. The higher the credit score, the better the mortgage rate. People with lower scores are considered more at risk of defaulting on the loan. To improve your score, make sure you pay all your bills on time and try to eliminate or significantly lessen credit card balances.
Down payment. Building savings and being able to put forward a larger down payment will help you receive a lower mortgage rate. Ideally, you should try to save up enough to make a 20 percent down payment.
Steady employment. Working for the same employer for at least two years shows mortgage lenders you have steady earnings, which makes you a more attractive borrower.
Fixed rate vs. adjustable rate. Fixed-rate mortgages keep the same interest rate the entire life of the loan. Adjustable-rate mortgage (ARM) rates change over time, beginning with an introductory period that lasts three, five, seven or 10 years of a steady rate. Following this introductory period, the ARM rate may change periodically.
15 year vs. 30 year. If you have a consistent income and feel you’ll live in your home for an extended period, it may be worth considering a 15-year loan rather than the average 30-year loan. Although a 15-year loan means higher monthly payments, it’ll save you thousands of dollars in interest.
Make sure you shop around for lenders and do research, even when refinancing, to make sure you’re getting the best rate for your situation.
This article is intended for informational purposes only and should not be construed as professional advice.