There are many things to think about when planning to sell your home and buy another one.
One of the first things to consider when determining your budget is the cost of selling a house, but of course, you’ll also want to determine how much house you can afford and part of that includes the interest rate you’ll pay.
Obviously, the lower the better as the lower your interest rate the less your monthly mortgage payment will be.
So how can you get the best interest rate on that mortgage loan?
Improve Your FICO Score
The No. 1 way to get the best interest rate for any type of financing, including a home loan, is to have a great credit score. The lowest interest rates go to those who have a score of 760 or higher – if you can get above 800, even better.
In order to boost yours, be sure that you’re paying every bill on time every month. If you’ve made any late payments in recent years, consider calling the companies to ask for a goodwill adjustment which can get them removed from your credit reports.
Avoid applying for new credit other than what’s absolutely necessary as inquiries can hurt your score too. Aim to pay off your revolving debts too – the less you carry the higher your score will be.
Experts say utilizing 10% or less of your available credit is best for a good score, although if you’re hoping to buy a home you might want it closer to zero.
Save as Much Money as You Can For a Down Payment
The more money you can put down on your new home, the better the interest rate you’re likely to get. Banks and other lenders generally offer better interest rates when the loan-to-value ratio is lower.
An increase in the down payment lowers that, which in turn lowers the risk to the lender. The more risk the lender takes, the more interest they’ll take to mitigate that risk.
Experts advise putting down 20 percent. While lenders can and do accept lower amounts, if you put down less than that, it typically means you’ll need to pay for private mortgage insurance too and that can range anywhere from .05 percent to 1 percent of the original loan amount annually.
Shorter Loan Terms
Again, as lenders generally give lower interest rates when their risks are mitigated, you might want to consider a shorter-term loan if possible.
This will often cut the interest rate significantly, paying much less on a 15-year mortgage as compared to a 30-year note, for example, although your monthly payment will be higher.
Just like you would when shopping for a car or any significant purchase, you should comparison shop for your mortgage to get the lowest interest rate possible.
Surprisingly many mortgage seekers only consider one lender, but that can cost you big time. It’s not only important to help you understand the various product features available like fixed-rate versus adjustable-rate, but the price at which they’re offered.
How to get the best interest rate on your mortgage?