Three Ways To Capture A Lower Mortgage Interest Rate

You'll be paying off your mortgage for 15 or 30 years. Over that long a loan period, even a 0.5% or 1% difference in interest rate can make a huge difference in the total amount that you end up paying in the long run. It's definitely worth your while to put some time and effort into procuring the lowest mortgage rate possible. Here are three ways you can go about getting a lower mortgage rate.

Improve your credit score.

Ideally, you should check your credit score about a year or at least 6 months before you seriously start looking for a home. A score between 740 and 799 is considered good, and a score between 800 and 850 is considered exceptional. If your credit score is below the "good" score, make it your goal to raise it to 740 by the time you apply for a mortgage. If your credit score is in the "good" category already, aim to raise it to the "exceptional" category. Some ways to raise your credit score include:

  • Make all of your payments on auto loans, credit cards, etc. on time or early.

  • Use your credit cards more often.

  • Avoid opening new credit cards or closing down existing ones.

Gather as much financial information as possible.

To even apply for a loan, you'll have to supply financial information like your income verification and tax returns. However, you can always supply more financial information than is required. This may give the lender more confidence in your ability to pay, resulting in a lower interest rate. For instance, if you are self-employed, you could give them copies of contracts you have lined up for the coming year. You could also provide statements for investments to show that you have more money at your disposal if needed.

Apply to several types of lenders.

Different lenders have somewhat different formulas for determining who they lend to and what rate they can offer. Small lenders like credit unions often look at different factors than big banks. So, when the time does come to start applying for mortgages, make sure you apply at an array of lenders. You'll get a number of offers and you can then choose the best one.

If you're struggling to get a mortgage at an affordable rate on homes for sale in your area, consider meeting with a financial advisor. They can look over your financial situation and let you know what changes you should make to secure a better rate.