How To Get the Best Deal on a Mortgage as Rates Approach 6%
Mortgage rates have been climbing following the U.S. Federal Reserve raising the prime rate by one-quarter of a point in mid-March 2022. According to Bankrate’s latest survey of mortgage lenders, average 30-year mortgage rates for June 2022 sit at 5.99%. The 15-year average rate is at 5.18%.
As rates creep up toward 6%, prospective homebuyers should be in a hurry to find a house and close on a mortgage. Although home prices are still elevated, based on Redfin reports, with the market showing signs of cooling, right now could represent a sweet spot for buyers to snag low interest rates. How can you find the best deal on a mortgage quickly?
First, keep in mind the nearly 6% average for a 30-year fixed rate mortgage. Some lenders are already writing loans with interest rates higher than that, while borrowers with excellent credit can still secure lower rates. It’s important to shop around to find the best rate you can right now, experts say.
“The rate highly impacts your monthly affordability for as long as you will hold this home,” Tomo principal economist Skylar Olsen told Time. She said that rates could get even higher “if inflation doesn’t come under control and the Fed’s action needs to be more aggressive.”
That doesn’t mean you can’t find low rates, but it does mean you may need to put in some extra legwork to do so. Freddie Mac research reveals that you can save $3,000 or more over the life of your loan merely by getting quotes from five lenders.
Don’t trust the advertised rates when you’re comparing lenders, The Mortgage Reports advised, as “online rates almost always represent the perfect borrower.” If your credit score is less than perfect, your debt-to-income ratio is high or you are looking to put less than 20% down, you will likely have to look a little deeper to find the lowest cost lender for your situation.
Fortunately, you can find the best rates in three simple steps.
1. Clean Up Your Credit
It takes time to pay down debt or see late payments vanish from your credit report. But you may be able to clean up any errors or misinformation on your credit reports to boost your credit score.
First, obtain copies of your credit reports from all three major bureaus: Experian, TransUnion, and Equifax. Every individual is entitled to a free report from each bureau every 12 months by visiting AnnualCreditReport.com. Additionally, through December 2022, you can get a free credit report each week from the site, according to customer information from the Federal Trade Commission website.
If you find errors on the reports, send letters to the bureaus, as outlined on the FTC website. If the errors aren’t corrected in time to process your mortgage, your chosen lender can request a rapid rescore. Your lender will determine if a rapid rescore is necessary, and will also cover the rapid rescoring fees, which can add up, according to The Mortgage Reports.
2. Get Pre-Approved
Once you’ve done everything in your power to boost your credit score, submit pre-approval applications to at least five lenders. Pre-approvals may result in hard pulls to your credit report, which means they will affect your credit score. However, by bundling all your inquiries within a short time frame, it will count as one pull and only reduce your score by a few points. Equifax stated that inquiries within a period of 14 to 45 days may count as one pull, but different scoring models use different time frames. To be safe, it’s best if you can complete all pre-approval applications within the same day, or at least within the same week.
Did you know that even if a lender quotes you a mortgage rate, you can still negotiate for better terms, including a lower interest rate? The Mortgage Reports suggested showing lenders competing offers to negotiate for a better deal. For instance, a lender could reduce your origination fee to lower closing costs.
You may also consider adding “points” to your mortgage, which allow you to “buy down” your interest rate. By paying 1% of your total mortgage upfront at closing, you can reduce your interest rate by 0.25%. This can save you money over the life of your loan.
It might be tempting to go with your first mortgage offer, or simply turn to your bank for a loan, but taking some time to shop around and compare your options can save you money for years down the road.
More From GOBankingRates