Finding a lender who is willing to finance your mortgage loan is not enough. You also need to find a loan that has a good interest rate. If you are in the process of shopping for a loan, here are some tips to help you land a lower interest rate.
Shop When The Time Is Right
Even though you might be emotionally and mentally ready to purchase a home, your credit score might not be ready. If you have a low credit score, waiting to apply for a loan could be a smart decision.
When you meet the minimum credit score required by lenders, you will receive a higher interest rate in exchange. However, if you can work on getting your score up above the minimum, you are almost guaranteed a better interest rate. Ultimately, you could save thousands by just waiting and working on your score.
Reduce Your Debt-To-Income Ratio
One of the factors your lender will consider is your debt-to-income ratio (DTI). The DTI helps lenders determine just how much you can repay each month on your loan. It can also help determine how much interest you will pay.
To determine your DTI, you need to calculate the sum of your monthly debts and divide it by your household's gross monthly income. A low DTI percentage means that you have more wiggle room to afford a mortgage loan.
If you are thinking of making other major purchases, wait until after you have completed the purchase of your home. The more purchases you finance, the higher your DTI will be. As a result, the interest rates offered can increase.
Negotiate For The Entire Loan
Instead of just focusing on the interest rate, you also need to work on negotiating every other aspect of your loan. Many of the fees you are facing also impact the interest rate. If you can get those fees down, you can get a lower rate.
For instance, you can negotiate your closing costs for a set amount. After that, you can ask the lender to give you an interest rate that does not increase the closing costs you previously negotiated.
If you are willing to pay discount points, do not let the lender know until you have negotiated as far as possible on the closing costs and interest rates. The discount points act as prepaid interest. Each point is representative of one percent of your loan.
If you wait until you reach the final offer on the interest, you can then ask the lender how much it is willing to come down if you are able to pay a discount point, or one percent, on the loan. At that point, you can further negotiate down the loan.
Getting a lower interest rate can take some ingenuity, but it is possible. Work with your lender to determine if there are other ways you can lower the rate. For more information, consider contacting companies like Commonfund Mortgage Corp.