How to find the best mortgage rate for your new home

new owners

Learn how to find the best mortgage rate and shop around for a great home you can afford.

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Prospective homeowners know that finding the best mortgage rate—that’s the annual interest rate you’ll pay on your mortgage—is one of the most important first steps toward homeownership.

By taking out a mortgage loan with a good interest rate, you will save money each month and for the duration of the loan. Here’s what to do to make sure you get the best deal on your mortgage.

How to find the best mortgage rate

1. Find out your credit score

In case you haven’t heard, your


credit score

is the key to most financial opportunities. Keeping your score in the good to exceptional range will unlock the best (and cheapest) financial products, including rates on things like, you guessed it, a mortgage. You can check your credit score for free with credit karma, Sesame Credit, Credit.comor FreeCreditReport.com.

2. Work on increasing your credit score

If your credit score is poor or fair, consider waiting to apply for a mortgage until you can get it higher. Depending on the type of mortgage product you choose, you could be locked into that interest rate for the life of the loan (unless you refinance, but that’s a subject for another story).

This equals thousands of dollars over the years, so the lower your interest rate, the more money you will save. Use some simple tactics to improve your creditas:

  • Get your spending on your credit cards under control (you should do this anyway if you’re about to apply for a mortgage and buy a house)
  • Become an authorized user on someone else’s account (who has good credit and spending habits)
  • Avoid opening new credit cards, at least during the home buying process

3. Ask about homeownership programs and other assistance programs

States offer different programs and grants for first-time home buyers and those with incomes below a certain threshold that can help


deposit

and


closing costs

as well as low-interest or interest-free loans.

There are also VA loans, offered by the Department of Veterans Affairsas well as USDA Loans, available in some rural and suburban areas from the U.S. Department of Agriculture. Also consider a FHA loanavailable to many types of homebuyers who have at least 3.5% down payment.

There are usually income caps and other stipulations for these types of loans, but they might be worth it if you qualify. the The Ministry of Housing and Urban Development keeps track of the various home purchase assistance programs by state.

4. Save a decent down payment

remember that the more money you put into buying your house, the less you will need to borrow to pay the rest. Borrowing less money also means paying less interest over the life of the loan.

Plus, depending on the type of mortgage you choose, most lenders require customers to put less than 20% down to pay. private mortgage insurance in addition to their monthly mortgage and interest payments. This acts as financial protection for the lender in case you are unable to pay your mortgage.

How much house can you afford? Use this calculator to find out:

5. Wait until you have a strong employment record to show

Along with your credit score and a solid down payment, lenders also like to see a stable employment and income record when it comes to offering the best mortgage products.

If you can show two or more years of steady income through pay stubs and W-2 forms, you’ll be more attractive to your potential mortgage lender than someone with a patchy work history.

6. Understand your different mortgage rate options

Traditionally, when applying for a mortgage, you have two options: a fixed rate or adjustable rate mortgage.

Fixed rate mortgages offer consumers the ability to always know what their monthly mortgage payment will be, since the interest rate on this loan is fixed for the term of the loan.

A variable rate mortgage, on the other hand, starts with an interest rate and, after an introductory period, can fluctuate depending on the market. These mortgages usually start out with a lower introductory rate than you’ll be offered with a fixed rate mortgage, but keep in mind that they can increase, sometimes quite significantly, over time.

You will also have the option of choosing between a 30-year or 15-year mortgage. While a 30-year loan might mean smaller monthly mortgage payments right now, if you can swing a 15-year loan, you’ll pay it off faster, which means paying less interest (much less, usually) on the long term. .

Be sure to ask for all the details for each type of mortgage product offered by your potential lender before choosing one.

7. Research different mortgage companies

Before applying for a mortgage, ask friends and family for mortgage broker recommendations and do some research online. Some obvious places you might want to consider include your bank and car and/or rental insurance company (if they offer mortgage products).

If you can narrow down your options to a list of places highly recommended by others — or that you’ve enjoyed as a customer for other products — you’ll be off to a great start. You may also need to go to a particular lender if you are interested in an assistance program or another unconventional mortgage option.

8. Use online rate calculators to see what your options are

Online mortgage calculators are a great way to get a first idea of ​​your rate options. Simply enter your income, location, down payment amount, and a few other details and the calculator will populate your potential options with different lenders.

Try this mortgage calculator from our partners:

9. Apply for multiple mortgages

Once you’ve done your research, increased your credit score, and have a decent down payment and work history, you’re ready to start applying for a mortgage. Although you can submit multiple mortgage applications at once, be sure to apply for mortgages with your approved list of lenders in a short period of time.

Mortgage applications can negatively impact your credit score, but, according to NerdWalletthe big three credit bureaus will count all applications as one loan application if you apply quickly, usually within 14-45 days.

Related coverage of How to do it all: money

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