Buying a real estate property in the US is most certainly a dream come true. And what places the cherry on top is if you get your mortgage approved at a low rate. But according to top realtors, all this is only possible if homebuyers shop around for a mortgage with patience, planning, and research.
However, shopping for a mortgage has changed significantly nowadays. In fact, according to a report published by Freddie Mac, mortgage buyers today don’t shop around and have no idea that the rates offered can vary, ranging from 1/8th percent to ½ from lender to lender. And you know what that means? Well, if you have a $300,000 loan, a half percent difference can result in over $1000 in savings annually.
Steps to Getting Your Mortgage Approved at a Low Rate
If you want to get your mortgage approved at a low rate, then here’s what you need to do:
Calculate Your Income and Debt Obligations on a monthly basis
The next step to apply for a mortgage loan is to calculate or document your monthly income and debt payments. For this, home buyers must provide at least 2 weeks of pay stubs to the lender. The lender will count the average of your last 2 years income to see what you can afford. One useful tip here is to make sure that you pay off your large debt payments before applying for a mortgage because large debt payments can limit the size of your mortgage and impact its approval.
Know Your Credit Score
Before you apply for a mortgage, make sure to obtain your credit score and history reports from all three credit bureaus. Verify any errors or derogatory items that can negatively affect your mortgage approval. Also, your credit score should be at least 680 or above 700 when applying for a mortgage loan. This is because the higher the credit score, the lower the mortgage rate you will have to pay.
Determine Your Mortgage Budget
According to top real estate agents, when determining your mortgage budget, you must first be clear about how much you can afford and are comfortable paying. The rule of thumb is that the total housing payment, which includes fees, insurance, and taxes shouldn’t be over 35% of your gross income.
Get a Full Breakdown of Fees and Costs
Next, focus on the origination fee, which can vary among lenders. Lenders have different names for this fee, such as underwriter fee, origination fee, and processing fee. So, compare it with different lenders. The fee can easily be reviewed if you have loan estimates.
Know Your Situation
Knowing your situation means that you should be clear about your credit score, the kind of home that you want to buy, the purchase price and how big of a loan you want. Once you are clear about these details, contact different loan officers to provide you with the best mortgage options available at different rates.
Go for Rate Shopping
As home prices continue to increase, rate shopping has become extremely important. You can easily expand your budget by shopping around and getting the lowest rates. Shopping around can help you find better-fit loans and rates.
Did you know those homebuyers who get even one extra quote have the potential to save anywhere from $966 to $2086 over the life of the loan? And for 5 quotes you can save nearly $2,089 to $3,904. Simply stated, if you shop around, you can easily get as much as a full 3 quarters of a percent difference.
Consider Paying Points
A point is basically a prepayment of the loan interest. One way to get the interest rate of the loan down is to make a huge cash payment up front in the form of points. By paying points, you can stay in the house long enough for that to be of value. This is where you can hire from our list of top real estate agents who can guide you about not only the mortgage approval process, but also show you how many years you need to stay in the house for paying points to be worthwhile.
Once you have done all the legwork, apply for a mortgage loan and get pre-qualified and approved at any time. The pre-approval is not binding, but it is definitely an indicator of your ability to get approved for a mortgage loan and this can give the home seller the peace of mind that if they take your offer, they will get their money soon without any delay.