Qualify for the best mortgage rate
Nabbing a lower mortgage rate means lower monthly loan payments and paying less in interest over time. But not everyone qualifies for the best rates. Take these three steps to snag a lower rate.
Make sure your credit score is up to snuff. A conforming mortgage is one that’s equal to or less than the dollar limit set by the Federal Housing Finance Agency, which is $548,250 in 2021 in most areas but tops out at $822,375 in high-cost areas. In normal times, borrowers of a conforming loan need a minimum credit score of 700 to qualify for the best mortgage rates, said Guy Cecala, chief executive and publisher of Inside Mortgage Finance. Now that number is closer to 750, “partly because credit scores have gone up during the pandemic,” he said. (The average FICO score in the U.S. was 711 in 2020, up from 703 in 2019, according to Experian, one of the major credit reporting companies.)
If your credit is in bad shape, consider talking to a nonprofit credit counselor who can help you devise a customized plan to raise your score. You can find one at www. nfcc.org.
Up your down payment. If you can make a large down payment on a home — 20% or higher for a conventional loan — a lender will offer you a better rate because they’re assuming less risk that you’ll default. Plus, plunking down at least 20% will allow you to avoid paying private mortgage insurance, an extra monthly fee that typically ranges from 0.55% to 2.25% of the original loan amount per year (or roughly between $30 and $70 per month for every $100,000 borrowed, according to Freddie Mac).
Comparison shop. Cecala recommends that homebuyers get quotes from at least three lenders before choosing a mortgage provider. “Nonbanks, like Quicken Loans, tend to be more competitive with rates than big banks, but it really depends on your market,” he said. You can use a mortgage rate comparison tool at LendingTree, NerdWallet or Bankrate to get offers from multiple lenders. In some cases, you may be able to pit lenders against one another to score a lower rate.