So, you're ready to buy a home in the near future, and you know your first step needs to be getting pre-approved for a mortgage. Whether you're planning on taking out a 10-year or 30-year mortgage, the fact remains that you still want to secure a mortgage with a great interest rate and favorable terms. By following just a few simple steps, you can ensure that you lock in the best possible mortgage rate.
Work on Your Credit Rating
Understand that while lenders aren't quite as strict about credit score requirements as they were several years ago, your credit rating still plays a major role in your eligibility for certain loan terms. Therefore, if you're not looking to buy a house immediately, you might consider using the next few months or more to work on improving your credit score -- especially if it's lower than average. It does take some time to raise a credit score, but even a bump of a few points can make a difference when it comes to the interest rate you qualify for.
Save for a Larger Down Payment
No matter what your credit score may be, saving for a larger down payment can help you qualify for lower mortgage rates. That's because borrowers who place a larger down payment are generally considered by banks to be "lower risk" than those who only make the minimum down payment. As a result, they're often given significantly lower interest rates. If possible, try to save up a down payment of at least 20%, as this will help you qualify for a lower rate and possibly eliminate your need to pay for private mortgage insurance.
Be Mindful of Your Debt to Income Ratio
Finally, understand the importance of your debt-to-income ratio when it comes to qualifying for a loan with a lower interest rate. If you're not planning on buying a home for a few months, consider reviewing your current debts and working on paying off as much of them as possible. Start with higher interest debts first, and then work your way to those with lower interest rates. The more income you have in comparison to debt, the lower risk you'll be considered by the banks and the more likely you'll be to be approved for a lower interest rate. From there, you can save a significant amount of money on your mortgage over its 10- or 30-year loan term.
Contact lenders, like Cheviot Savings Bank, to learn more about the qualities that will help you get a better mortgage rate.
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