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Best Mortgage Rate Tips For Homeowners

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If you’re a first-time homebuyer knowing the intricacies of home loans takes a lot of research. More than likely, the mortgage you accept is not the best one for you – it’s just the one you accept. It’s not until later, when the loan is up for renewal, or you’re refinancing for renovations or upgrading to a higher quality property, that you realise the many options and different home loan products available to you.

The good news is you can not unlearn what you know, and to make sure you get the best home loan for you, it pays to give yourself plenty of time to do your homework to get the best deal. Most borrowers focus just on the interest rate and aim to get the lowest with no regard to the actual real cost of the loan over its term. Once you realise there is more to accepting a mortgage than just the interest rate, the more driven you’ll become to get all the information you need before signing on the dotted line of a loan agreement.

Start your research by asking the right questions about loan products so you can factor in the additional costs over and above the interest rate.

  • Origination fees that may include fees for the application, underwriting, and processing
  • Credit report fee
  • Mortgage insurance (if less than 20% deposit)

You may also need to spend money on third parties to get a property valuation report, building inspection and title search.

As part of the mortgage deal, the lender can contribute to closing costs and the conveyance fee. It’s not uncommon to get an average of $6000 as part of the mortgage product. Remember to factor in the lender contribution, and then you can focus on getting the best mortgage interest rate – i.e. the lowest.

The Best Tricks To Getting An Incredible Mortgage Rate

If you’re trying to refinance your home, consider comparing lenders with an aggregator like iSelect in Australia to benefit from the hundreds of refinance home loan options available to them.

Every country has options for your research too for example in America an online search will present guides on the best mortgage rates available. could benefit from the hundreds of refinancing home loan options available to them.

High Credit Scores

Mortgage lending has always been based on tiered pricing, and one of the ways to get the most bang for your buck is by having a high credit score. The best mortgage rates are available to borrowers with a credit score of 760 or above, so pay your bills on time to improve your credit score.

A score of 620, which is the minimum score you need to qualify for a mortgage, will give you a 5% mortgage rate, while a score of 760 or higher will receive a 3.4% rate, a 1.5% difference.

Stable Employment and Income

In the modern gig economy, banks are still strict regarding self-employment income. If you’re self-employed or own your own business, you’ll need to provide two years’ worth of tax returns to apply for a home loan. They may even ask for proof that your documents are authentic.

However, if you have a stable income from an employer, you’ll ace this part of the application. Since you’re less of a “risk” to them, you’ll also receive the best mortgage rates in this section.

A Big Down Payment

Depending on where you live, you’ll likely have the option to pay into a 5% down payment. However, that won’t get you the best mortgage rate. If you’re able to shell out 20% towards your down payment, you’ll be seen as less of a risk and will be awarded a low mortgage rate.

There’s another reason to save for that 20% down payment. When your down payment is less than 20%, you have to pay for private mortgage insurance, which adds to the cost of your loan.

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A Low Debt-To-Income (DTI) Ratio

There are two types of DTI ratios. The first is the back-end ratio, which accounts for the total of your monthly debt payments, plus your house debt, divided by your gross income. The front-end ratio is your house loan debt specifically. The lower your DTI, the lower the interest rate.

Most banks won’t let you take out a mortgage if you have over a 28% front-end ratio and a 36% back-end ratio. However, if you’re strong in other areas, you can get away with more.

Finding the Right Lender

The right lender can make all the difference in your mortgage payments, as banks don’t always offer the best rates. At the same time, your primary bank, or the bank you use for your checking account, may give you a rate that’s less attractive than another. Don’t settle for your bank.

Sometimes a private mortgage lender or broker can give you the best deal based on your credit score and other metrics. Use mortgage tables and home loan comparison sites religiously.

2-4 Months of Cash Reserves

Do you have cash reserves that could be used to pay your necessities? If not, you should open up a bank account and start throwing money into it. Lenders will check how much money you have in reserves to ensure that you’d have enough money to pay your loan if you lost your job.

The standard cash reserves requirement is two months, but the more you have, the better. Many “high-risk clients” could get a low mortgage rate if they have a lot of cash reserves.

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