How to get a better mortgage rate?
When you apply for mortgage you should know a few important things which can lower your rates. Reducing your mortgage rate by just one percent can save you thousands of dollars! How can you get a lower mortgage rate?
First of all you need to improve your credit because your credit reports and credit scores are the main aspect of the transaction. Your mortgage lender usually checks all your credit scores provided by the main three credit bureaus (Equifax, Experian, and Trans Union) and uses the middle score to calculate your rates. Normally a credit score which turns over 650 helps you get nice mortgage rates. The more your credit score is (over 750), the lower your rates are. If worse comes to worse and your credit score is less than 650, then you can try to do the following:
1) Reduce your credit card balance below 35% of the credit limit
2) Keep your accounts stable
3) Correct negative inaccuracies
4) Make your payments on time
5) Avoid unnecessary applications for credit
6) Try to do that at least 3-6 months before you apply for mortgage
The second necessary thing to do is to reduce your debts. Mortgage lenders always look at your debt-to-income (DTI) ratio to determine how much you can afford to borrow. This ratio is calculated by dividing your monthly pre-tax income by the amount you use to pay off debts such as student loans, auto loans and credit card balances each month. Those borrowers whose ratio is below 30% can get a good mortgage deal. And if your DTI is too high, you would have to pay off some additional loans such as personal loans. You also shouldn’t close your credit card accounts when you pay the off because it can damage your credit score! You can also improve your DTI by increasing your income.
And the third thing to do is to improve your loan-to-value ratio. This element also contributes a lot to your rate calculating. Your loan-to-value (LVT) ratio is calculated by dividing the amount you want to borrow by the price of the home you want to buy. For example, you want to buy a house for $100,000 and want to obtain a mortgage for $90,000, so your LVT ratio equals 10%. Basically, lenders look for borrowers with an LVT over 20%. However, today many borrowers put down only a 5% down payment or just obtain a non-down payment loan. It’s especially common for first-time borrowers who want to buy a home with little or no down payment. To improve your LVT ratio you need to increase your down payment or to choose a less expensive home to buy. Many internet sites contain downloadable calculators that can help you to do the necessary mathematics. (e.g.: www.bankrate.com)