Currently, mortgage rates are quite competitive from a historical perspective. But they’re considerably higher than they were at any time in 2021. And there’s reason to believe that rates will continue to rise through 2022.
On the one hand, rates are at or near record highs since mid-2020. They were likely to rise sooner or later. In addition, the Federal Reserve plans to raise interest rates. Although the Fed does not set consumer interest rates, its actions can influence them.
If you are planning to buy a home this year and want to keep your borrowing costs to a minimum, there are steps you can take to get a lower mortgage rate. Here are three to start with.
1. Boost your credit score
Your credit score paints a picture of how risky you are as a borrower. The higher your score, the less worried a mortgage lender is about lending you a large sum of money to buy a home. But the lower your score, the more risk your lender takes.
If you want to get an affordable rate on a mortgage, it pays to work to improve your credit score. That doesn’t mean you have to get perfect credit – it does. really hard to do. Instead, aim to get your score in at least the mid to high 700s. Once your score enters this range, it opens the door to lower rates.
You can take different steps to increase your credit score. First, pay all bills on time. Then reduce existing credit card balances to use less of your total credit limit. Finally, inspect your credit report for errors and correct any that could unnecessarily lower your score.
2. Explore different financing options
When it comes to borrowing for a home, you’re not limited to a conventional mortgage. There are other loan programs you can look into that could pave the way for a more affordable mortgage.
An FHA loan, for example, might be an option if you are limited in the amount of money you can shell out for a down payment. Likewise, if you’re a military or veteran, you might consider taking out a VA loan, which allows you to buy a home with no down payment.
3. Shop around with different lenders
Although mortgage rates have increased nationally, ultimately lenders set their own rates based on different criteria. If you’re looking for a mortgage, it’s better to ask quotes from several lenders than to accept the first offer you receive, even if it seems very attractive. You never know when a lender might surprise you with a better deal.
Keep in mind that interest rates aren’t the only thing to consider when exploring your borrowing options. You’ll also want to keep in mind closing costs, which are the fees you’re charged to finalize a mortgage. Ideally, you should aim to find an offer that not only includes the lowest mortgage rate, but also the lowest closing costs.
For a year and a half, mortgage borrowers have benefited from historically low rates. Unfortunately, those days may be behind us. But that doesn’t mean you can’t get an affordable home loan, even with higher rates than they’ve been in a while.
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