When buying a home, locking in a great mortgage rate is key to setting yourself up for future financial success. (New American Funding),
Getting a great mortgage rate makes all the difference when shopping for a home. For hopeful homeowners, it’s important to take certain vital steps to ensure you’re getting a great mortgage rate.
It’s important to remember that mortgage rates aren’t arbitrary numbers chosen by lenders. There are several different factors that impact the average interest rates affixed to home mortgages, including:
- Employment patterns — Strong employment growth tends to increase interest rates, while slow growth or weak employment numbers will keep rates low.
- The stock market — As many remember, during the stock market crash of 2008, the housing bubble burst as well. Interest rates typically reflect the state of the stock market.
- The Federal Reserve — When money is pulled out of the American economy, the Federal Reserve typically anticipates inflation and increases interest rates. If money is added, interest rates will likely decrease due to economic stimulation.
- Global impact — Geopolitical events like gross domestic product improvements, terrorist actions, natural disasters and more will make interest rates more volatile.
Other factors that impact a mortgage interest rate include credit score, the size of the loan, the down payment amount and the location of the home being purchased.
How To Get A Great Mortgage Rate
Even as mortgage rates rise, following these tips can help you land a great rate for your new home.
1. Understand Your Credit Report — Credit reports are available through each of the three major credit reporting agencies (Experian, TransUnion, Equifax) once a year through AnnualCreditReport.com. When you receive your credit report, be sure to look at the following elements for errors, inaccuracies, or fraud.
- Credit score — The median credit score for successful mortgages hovers around 720. Understand where your credit score is and what you need to do to improve it if it’s below the threshold.
- Credit account information — A credit report will often include the types of accounts you have, the credit limit or loan amount, account balances and payment history.
- Inquiry information — You may see both soft and hard inquiries here. Soft refers to you checking your own credit score; hard inquiries refer to a credit card company or lender reviewing your reports because you have applied for credit or a loan.
- Boost Your Credit Score — Once you’ve assessed your credit, decide if you need to improve your credit score. Improving your credit score could get you a lower mortgage rate, as it indicates to lenders that you’re a reliable borrower and will pay your mortgage on time.
Here are a few effective ways to improve your credit score:
- Pay bills on time. Set up automatic payments and avoid late payments on credit cards to ensure your reputation as a borrower remains in good standing.
- Reduce owed debt. As much as you can, try to pay down your outstanding debt on any credit cards you have. Lenders want to see you spend responsibly, so aim to keep your credit card balances below 30 percent of your limit.
- Avoid opening or closing accounts. Though it might seem like a good idea to close a credit card account, this reduces the amount of credit you have available. On the other hand, lenders may see opening too many accounts in a short period of time as financially irresponsible.
- Establish a positive credit history. Those who haven’t had a credit card for a very long time can’t demonstrate their history of proper spending and on-time payments. As much as you can, display your creditworthiness with low revolving utilization, on-time payments, and modest accounts.
3. Decrease Your Debt-To-Income Ratio — Another factor in helping you get the best possible mortgage rate for your home is decreasing your debt-to-income (DTI) ratio.
A DTI ratio is calculated by taking all your monthly debt payments together and dividing that number by your monthly income before taxes. There are two types of DTI ratios: a front-end DTI, which is a calculation related to the house you’d like to buy and the mortgage you’d need to buy it; and a back-end DTI, which provides a picture of your current debt situation.
In 2023, most lenders indicate that the ideal front-end DTI ratio should be around 28 percent, while the back-end ratio has a bit more leeway, allowing for up to 36 percent. At its simplest, there are two ways to decrease your debt-to-income ratio: lower your debts and/or increase your income. Lowering your debt, or not incurring additional debt while also increasing your income, will have a positive impact on your DTI ratios.
4. Save Up For A Down Payment — Saving up to put a sizable down payment on your home will decrease your mortgage payment. Although 20 percent of the purchase price is the “traditional” recommended down payment, different types of loans and lenders require as little as 3 percent down, or none at all, depending on whether you qualify for certain federal programs.
Even if your down payment isn’t a full 20 percent of the purchase price, consider putting more down upfront to lower your monthly payment. You can save money for your down payment in a few ways, including:
- Sticking to a strict budget.
- Eliminating unused membership and subscription fees.
- Reducing dining out, fast food, and daily coffees.
- Limiting incidental spending like clothes and unnecessary technology.
- Temporarily reducing the money you put into your retirement savings.
While these may seem like small steps, each dollar you can put toward your down payment will make a difference in the long run.
5. Talk With A Loan Officer — A loan officer can help you determine if you’ve found the best rate, understand all your loan options, and guide you through the mortgage process. Whether you’re looking for a fixed or adjustable rate, a conventional loan, an FHA loan, or a VA loan, New American Funding’s loan officers can guide you through.
After consulting with a loan advisor and getting a great rate, lock it in with New American Funding’s 5 Year Rate Protection Pledge. Not only does the pledge lock in your interest rate, but it also allows you to refinance to a lower interest rate (if applicable) later without extra fees.
New American Funding Can Help You Navigate The Mortgage Process
New American Funding connects homeowners with experts who can help every step of the way, from getting a hold of your finances to deciding between various traditional and non-traditional mortgage options, including:
- A Buydown Loan, which offers a reduced payment rate in earlier years. For eligible borrowers, New American Funding provides a new fixed-rate loan that can reduce your first-year, second-year, and third-year payment rate on a 30-year loan.
- NAF Cash*, an affiliated company of New American Funding, which helps customers compete with cash buyer offers. The program helps you buy your home for less, as well as close faster than traditional buyers. It gives you up to 90 days to sell your existing home and helps you stand out from the competition with a more attractive bid.
- RE Home Connect, where customers can connect with realtors who can help with the purchasing process. RE Home Connect gives you access to recommended agents who can analyze the market and ensure you are maximizing your purchasing power.
New American Funding’s loan advisors have the knowledge and expertise to guide homebuyers through the process of getting finances in order and choosing the right loan for their needs. In 2022, New American Funding was recognized as #1 in customer satisfaction among mortgage servicers by the J.D. Power 2022 U.S. Mortgage Servicer Satisfaction Study. The company was able to achieve this prestigious recognition through its dedication to helping every client from every background achieve homeownership.
Want to take the first step in your home-buying process? Contact New American Funding for more information or request a quote for your mortgage.
*NAF Cash is fulfilled by NAF Cash LLC, an affiliated real estate company of New American Funding that is managed and operated in compliance with applicable legal and regulatory requirements. NAF Cash LLC does not originate loans or issue loan commitments. Terms and Conditions apply. Not available in all states. MI Real Estate Broker #6502431375. 41050 W 11 Mile Rd, Suite 220, Novi, MI, 48375. Phone 844-344-0531
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