Purchasing a home is an exciting time for most people. Whether you’re looking to buy a home for yourself or start a family, you’ll want to get the best mortgage rate. This way, you don’t enter a financial agreement you can’t afford or one that requires you to pay more in interest than you’d like.
If you’re in the market to buy a new home, you may be seeking the best mortgage rate. Here are a few helpful tips.
Finding a good mortgage rate may take some work, but it’s well worth it in the long run
If you want to close a deal with a seller and walk away with a good mortgage rate, you'll need to do a little work first. One of the biggest factors in determining if you qualify for a mortgage and how much interest you’ll have to pay is your credit score.
The lower your credit score, the more you’ll be asked to pay in interest. For instance, let’s say you wanted to buy a $200,000 home with an interest rate of 3 percent. This rate is close to the average in 2021 for a 30-year fixed-rate mortgage, according to Freddie Mac.
Under these terms (a 30-year fixed-rate mortgage), you would end up paying $103,555 in interest over the life of the mortgage. In total, your home would cost you $303,554. Now, let’s say that because your credit score isn't strong, you're approved for a $200,000 loan with a 3.9 percent interest rate. Generally, an interest rate of 3 percent or lower is considered excellent.
When applying these figures, you would end up paying $139,601 in interest and a total of $339,601 over the life of the mortgage. As you can see, your credit makes a big difference in the interest you’ll pay. With that in mind, if your credit score is just fair or below 740, you might want to spend some time repairing it.
To get the best mortgage rate, you’ll want to put down at least 20 percent of the property price
While it’s customary for homebuyers to put down 10 percent of a property’s price at closing, you could get a better mortgage rate by putting down 20 percent. According to Bank of America, when you put 20 percent down, you generally won’t be required to pay for the private mortgage insurance that some lenders require.
Using a mortgage calculator can help you secure the best rates
Before you apply for a mortgage, consider what you can afford. Credible provides a free online mortgage calculator that breaks down exactly what you’d be paying for a home. This amount includes your total monthly payment and how much interest you’d pay over the life of your mortgage.
You can use the calculator to decide how much you’re willing to spend on a home and interest. Going into the homebuying process with these figures already calculated can make things much smoother.
An additional tip to get the best mortgage rate
A final step you can take to find the best mortgage rate is to obtain multiple quotes from providers. Each mortgage lender sets its own eligibility criteria, and some may offer you a better rate than others. By obtaining multiple quotes, you can compare.