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How to Get the Best Mortgage Rate

Updated: Apr 19



Most of us don’t have the kind of cash available to buy or fix up a home. That’s where a mortgage comes into play. Whether you’re buying your first home, making improvements to one or looking to invest in a rental or vacation spot, your next mortgage can help make your goals a reality.


To get there, though, it’s crucial to get the best possible mortgage rate. The rate and terms of your mortgage matter, since these factors can dramatically impact the total amount you spend. Lower your rate by a percentage point or two, and you’ll save thousands in interest over the course of the loan.



How to get the best rate on your next mortgage:


As you consider your options for your next mortgage, it’s a good idea to set yourself up as best you can to ace the loan application and score the lowest rate.


“There are three pillars: your credit score, your income (which is converted to a debt-to-income ratio) and your assets,” explains Josh Moffitt, president of Silverton Mortgage in Atlanta.


In each of those areas, here are the steps to take to help get the best possible mortgage rate.





1. Improve your credit score


A lower credit score won’t automatically bar you from getting a loan, but it can be the difference between getting the lowest possible rate and being hit with more costly borrowing terms.


“A credit score is always an important factor in determining risk,” says Valerie Saunders, executive director of the National Association of Mortgage Brokers (NAMB). “A lender is going to use the score as a benchmark in deciding a person’s ability to repay the debt. The higher the score, the higher the likelihood that the borrower will not default.”


In general, the more confident the lender is in your ability to repay on time, the lower the interest rate they’ll offer.


To improve your score, pay your bills on time and pay down or eliminate those credit card balances. If you must carry a balance, make sure it’s no more than 20 percent to 30 percent of your available credit limit. Also, check your credit score and report regularly and look for any mistakes on your report. If you find any errors, work to clean them up before applying for a mortgage.



2. Build a record of employment


You’re more attractive to lenders if you can show at least two years of steady employment and earnings, especially from the same employer. Be prepared to show pay stubs from at least the 30-day period prior to when you apply for your mortgage and W-2s from the past two years. If you earn bonuses or commissions, you’ll need to provide proof of that, as well.

It can be more difficult to qualify if you’re self-employed or your pay is coming from multiple part-time jobs, but not impossible. If you’re self-employed, you might need to furnish business records, such as P&L statements, in addition to tax returns, to round out your application.


What if you’re a graduate just starting your career, or back in the workforce after time away? Lenders can usually verify your employment if you have a formal job offer in hand, so long as the offer includes what you’ll be paid. The same applies if you’re currently employed but have a new job lined up. Lenders can flag your application if you’re switching to a completely new industry, however, so keep that in mind if you’re making a change.

Gaps in your work history won’t necessarily disqualify you, but how long those gaps are matters. If you were unemployed for a relatively short time due to illness, for instance, you might be able to simply explain the gap to your lender. If you’ve been unemployed for longer, though — six months or more — it can be tough to get approved.





3. Save up for a down payment


Putting more money down can help you obtain a lower mortgage rate, particularly if you have enough liquid cash to fund a 20 percent down payment. Of course, lenders accept lower down payments, but less than 20 percent usually means you’ll have to pay private mortgage insurance, which can range from 0.05 percent to 1 percent of the original loan amount annually. The sooner you can pay down your mortgage to less than 80 percent of the total value of your home, the sooner you can get rid of mortgage insurance, reducing your monthly bill.



4. Go for a 15-year fixed-rate mortgage


While 30-year fixed mortgages are common, if you think you’ve found your long-term home and have good cash flow, consider a 15-year fixed-rate mortgage in order to pay off your home sooner. You can also go for a 15-year term if you’re refinancing your current mortgage. The benchmark 15-year fixed mortgage rate is currently 2.430%, according to Bankrate’s national survey of lenders.