How to Get a Better Mortgage Rate

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How to Get a Better Mortgage Rate

Improve your credit score
Whenever you apply for any kind of loan or credit, lenders are looking at your credit score. Your credit score is arrived at by analyzing your credit history. The higher the credit score, the lower the interest rate and vice versa.

If you are planning to purchase a house in the near future there are few simple steps that you can take to improve your credit score.

• Pay all your bills – Every late payment can cost you 15-40 points on your credit score.

• Clear any old debt – Your past payment history is the biggest part of your credit score at 35 percent. It is prudent to pay off any old debts you have as it increases your score drastically.

• Clear any default in your credit history – Like any other document your credit report can also have errors. It is prudent to check your report at least once a year and before you are going to applying for a mortgage. Incase you do notice any errors you can approach the credit bureau for information correction. However budget 60-90 days for changes to appear on your credit report.

• Credit cards – An extreme measure would be to stop using credit cards two to three months before taking out the mortgage. However, experts recommend an intelligent method of minimal usage, which will show as a good debt ratio and help increase you score.

• New accounts– It is wise not to open any new accounts. Opening too many new accounts in a short span of time shows “you are not able to handle your credit responsibly”.

• Unused accounts – You should close any unused accounts as they show as debt available to you and can affect your debt ratio adversely.

• Avoid unnecessary inquires – Every time an inquiry is made, your credit score is reduced. So don’t subscribe to irrelevant cards which you would not be using.

Plan for a down payment

• 20% down - The most important thing that affects your mortgage principal and interest rate is the down payment you make. Experts recommend that you should put down at least 20% of your property value. This reduces the principal and the interest rate payable on the total amount due.

• Mortgage insurance - If you are unable to put down that kind of down payment you would be required to take mortgage insurance. If you don’t have enough to make a down payment – consider getting a loan through schemes such as FHA or VA programs.

Points
Your mortgage is calculated on the bases of how many points you have.

• Understand how points are calculated, which items will be added to the points as every point leads to an increase of 1% in your interest rate.

• Try paying discount points. However pay discount points only if you plan to reside in the same house for sometime as this course of action takes few years to payback.

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