If youre buying a home through mortgage, you would want to have the lowest possible interest rates for your mortgage since this will have to be paid on top of the amount that you borrowed. Heres how you can potentially qualify for a low-interest mortgage rate.
Prepare to Put a Larger Down Payment
Since the mortgage interest rate is computed against the amount of the loan, you should always consider putting a larger down payment. For instance, if the value of the property is $200,000, you will be better off with a loan-to-value rate of 80% than 90%. This means you will be borrowing $160,000 instead of $180,000. The lower loan value will help you gain a lower interest rate. Unfortunately, youve got to start saving for that $40,000 down payment if you want to realize your dream home.
Improve Your Credit Rating
As a general rule, individuals with a credit score of anywhere between 760 and 850 can save as much as $33,000 in total mortgage interest. This is when compared to someone with a credit score of between 660 and 679. As such, the higher your credit rating, the better your chances of getting lower mortgage interest rates. You might want to start improving your credit score before you even consider applying for a home mortgage.
If youre looking to sell your house in a few years, it is always wise to go for a shorter term of mortgage. This can help you net a much lower mortgage rate. For example, a typical 5-year mortgage can have an adjustable-rate mortgage of about 4.19%. Compare this to a 30-year fixed rate of 4.80% and you can save as much as 0.61%. It may be less than 1%, but this can easily amount to hundreds of thousands of dollars. If youre not looking to sell your property, go for the medium term, say 15 years.
Make Sure You Have an Employment Record
Lending institutions want to be sure that the person they are lending to has stable means to repay them. As such, majority of lending institutions will want you to have a minimum of two years of continuous, steady employment. They may require W-2s as well as pay stubs or pay slips. Self-employed individuals may have a more difficult time securing a loan or even gaining a low-interest mortgage rate.
Your mortgage interest rate is what youll pay on top of the amount that you borrow. It makes sense to have it reduced to make purchasing your dream home a lot easier.