How to Get Low Interest Rate on Home Loan for First Time Buyers

Buying a first home can be a life achievement, and, therefore, receiving a low-interest rate on a mortgage can be even more valuable.

Interest rates are an important factor of your monthly instalments and the total amount you will pay in the long run.

Below are some guidelines that every first-time homebuyer should consider in order to acquire a home mortgage with low rate of interest.

Understand and Improve Your Credit Score

Lenders base the interest rates you are to be charged on your mortgage on your credit score, among other factors.

This in a way provides a message to lenders that show you as a responsible borrower, thus warranting you low rates.

1. Check Your Credit Report:

You can get one credit report from the top credit reporting agencies for free and check for inaccuracies. The good thing is that, it is possible to correct issues that are wrong in order to gain score.

2. Pay Down Debt:

Lower your debt to income (DTI) ration overall by paying outstanding balances on credit cards or loans. Although, current DTI should be below 43%, and the lower the better.

3. Avoid New Credit Applications:

Do not apply for new credit cards or loan several months before applying for mortgage because this will lower your credit score.

It is also important to note that when you make too many inquiries into your credit report you will see your score drop for a while.

4. Settle Late Payments:

Pay off any outstanding bills because late payments are considered to be part of your credit score.

When you are working to build up your credit rating, you set yourself up for being able to get a better loan and a lower APR.

Research and Compare Lenders

Depending on the amount and term, the interest rate and terms in the loan will vary across lenders, so it’s best to look for the best market rates.

1. Explore Multiple Options:

It is important to compare rates provided by banks, credit unions and active online lenders, as well as mortgage brokers.

Do not accept the first offer that you are given.

2. Request Pre-Approval:

Using preapproval to get your interest rates from several lenders, is a way of getting the subject in detail.

It also has an effect on sellers showing them that you are serious about the products you are buying.

3. Ask About Discount Points:

Some lenders allow you to purchase credit points and these are initial charges meant to bring down your interest.

Big question is, does this make sense for your current or projected financial scenario and length of time the homeowner will be in the home?

4. Look for First-Time Buyer Programs:

Most of the lending companies and government organizations also have some form of promotion for first-time timers with regards to rates, down payments and/or closing costs.

It is therefore important for borrowers to invest their time adequately in researching in an opportunity to secure the best lenders whom they can negotiate for the best loan terms.

Maximize Your Down Payment and Leverage Assistance Programs

The interest rate you get depends on the amount you paid initially or the size of your down payment.

The desire to avoid excessively high risks makes lenders determine that a larger down payment will help reduce risks.

1. Save for a Larger Down Payment:

Lenders will usually require borrowers to put down at least twenty percent of the home’s purchase price in order to not be required to pay PMI and to obtain the best available rates.

However, you will realize that no matter how small the amount is that you add to your down payment, you will be able to make the difference.

2. Utilize Assistance Programs:

Most first-time shoppers are eligible for State housing or Federal housing assistance like the FHA loans, USDA loans, or the VA loans.

Such plans are available at more compatible charges and less stringent credit conditions.

3. Negotiate Seller Concessions:

Sometimes the sellers are willing to contribute to partial payments of closing costs or some other expenses so that you can save more for your down payment.

If you are in a financial position to make a larger down payment and use the resources available to you effectively, you stand a chance to get a better deal any time you approach a lending institution to fund your purchase of a home through a mortgage.

Time Your Mortgage Application Strategically

The interest rate that is slapped on your mortgage also depends on when you applied for the mortgage.

There are many factors that define mortgage, but the most important role is paid to the economic status and market trends.

1. Monitor Market Trends:

Just as you need to monitor the interest rates in the market, you should also keep abreast with other factors such as economic indicators.

Mortgage has a direct link in some cases to the rates of inflation and the decisions of the Federal Reserve.

2. Avoid Locking In Too Early:

On the positive side, you are often locked into a certain rate, preventing you from dealing with rate hike, although getting a rate lock too early may cause you to miss out on a drop in the market.

3. Consider Seasonal Patterns:

It has become popular opinion that there are certain months in a year, particularly in the tail-end or early months of the year, that can usher better deals since there is increased competition among the lenders to get more borrowers.

Thus, an applicant can study the forecasts as well as select an optimal time for completing the application to benefit from a lower interest rate.

Conclusion

It may interest you to know that as a first time buyer, you need to plan and do your homework well in order to secure a low interest mortgage.

To begin with, you should work toward having a good credit score, trying to get more information on lenders and also save more money for down payments if possible.

With these steps, you can shave thousands of dollars off the cost of your loan over the course of its term, and inch measurably closer to your dream of getting a home.

Also read: The Pros and Cons of Rent to Own Housing Options