It’s A Bargain: How to Obtain the Best Mortgage Interest Rate
When buying a home, one of the first things people consider is the mortgage interest rate. A low interest rate can save homebuyers thousands of dollars and the money saved up can be used to pay off other mortgage-related expenses, such as mortgage insurance.
Primary Residential Mortgage, Inc. knows that homebuyers looking to get the best interest rate will initially approach a loan officer or a mortgage broker. Before proceeding with the consultation, however, homebuyers should take steps to improve their financial situation as the best interest rate will only be given to financially responsible people.
What steps should a homebuyer perform to get the best interest rate?
Improve Credit Score
One of the criteria used by mortgage lenders is the FICO credit score. A homebuyer’s credit score will determine two things: whether the homebuyer is qualified to obtain a loan and the interest rate that will be paid on the loan.
The interest rate on the loan is inversely proportional to a homebuyer’s FICO score. Lenders are likely to give homebuyers a low interest rate if they see a high FICO score and “penalize” homebuyers with a high interest rate if they see a low score.
To qualify for a mortgage loan, the minimum FICO score should be 620. Those looking to snag a low interest rate of 3.433% need to obtain a score of 760 and above.
Meet the Minimum Downpayment
As a rule of thumb, the minimum downpayment needed to get a good mortgage rate is 20%. Like the credit score, the minimum downpayment is inversely proportional to the interest rate.
Increase Cash Reserves
The amount of cash stashed in a savings or checking account also influences the interest rate. Ideally, a homebuyer needs to set aside at least two months’ worth of mortgage payment.
Homebuyers who are serious about grabbing a good interest rate need to focus on improving their financial health. They can start with baby steps, such as paying off their debt and saving extra money.