4 tips to help you get the best mortgage rate

Interested in buying a house in Texas, but not sure how to obtain the best mortgage rate? A loan’s interest rate applies to the entire term. This means that a 30-year loan at a 4% interest rate versus the same loan term at a 3.50% rate can cost homeowners thousands more dollars each year. When purchasing your first home, the lower the interest rate, the better — and it may even help you pay off your mortgage early. 

How to get the best mortgage rate when buying a home

Not sure how to get the lowest possible interest rate when applying for a mortgage? Here are a few tips that can help you.

1. Check your credit score.

A low credit rating or lack of credit history can make it difficult to obtain a low-interest rate on a mortgage. What qualifies as a low score? A FICO score of 800 or higher is considered excellent, 740-799 is very good, 670-739 is good, and below 669 is viewed as fair to poor. Consumers can access one free credit report from all three credit reporting bureaus — Experian, Equifax, and TransUnion — each year to check their scores. 

A high rating communicates to credit unions or banks that you’re reliable and will make monthly mortgage payments on time. Although building your credit may seem like an arduous task, there are many simple ways to improve your score. Setting and sticking to a budget, making credit card payments on time, paying off any past-due balances, and refraining from opening and closing credit card accounts too frequently are all strategies that can help boost your credit rating. 

2. Set a realistic budget.

For first-time buyers, purchasing a home is a life-altering decision. Owning a home is a long-term investment, and any repairs, upgrades, or renovations must be paid for by the homeowner. 

Before purchasing a home, buyers should take an honest look at their budget and how much money they can afford to put toward a mortgage payment each month. The average price of a home in Texas currently hovers around $250,000. Down payments, closing costs, broker fees, appraisal fees, and mortgage origination fees can add up to 5% of the total property cost. 

They should also consider which type of home loan would work best for them. Fixed-rate mortgages remain the same throughout the life of the loan. Your monthly principal and interest payments remain consistent, even though the cost of insurance and property taxes may change. 

The interest rate of an adjustable-rate mortgage (ARM) will change over time. This type of loan typically starts with a lower rate that remains the same for the first three, five, seven, or even 10 years, but will likely fluctuate during the rest of its term. 

Financial experts suggest that your total mortgage payment should not surpass 35% of your gross income, and it’s recommended to put no more than 25% of your income toward a home payment. 

3. Make a larger down payment on your home

The average down payment on a home falls around 20% or lower, but making a larger down payment may help you secure a lower mortgage rate. A higher down payment will also reduce the total amount you need to borrow from your credit union or bank, helping you pay off the mortgage faster. 

Certain loan types, such as FHA-backed loans, require down payments as low as just 3.5%. There are also many available state grants and down payment assistance programs in Texas, which offer assistance to low-income borrowers, teachers, police officers, first responders, and more.

4. Pay off as much debt as possible

Too much debt can hinder your chances of obtaining a low-interest rate on a home loan. Putting additional income toward your credit card, personal, auto, or student loan debt may seem counterproductive while trying to save for a home, but improving your debt-to-income ratio will likely help you secure a better interest rate from your bank or credit union. 

Buying a home for the first time?

Purchasing a home for the first time can be difficult, and obtaining the lowest mortgage rate isn’t always easy. Your FICO credit rating, down payment, the current state of the housing market, and more can impact the interest rate you’ll receive. Meet with a mortgage expert today at ttcu.mortgage.