In the thrill of buying a home, it's easy not to think too hard about your mortgage rate. Aren't the rates all pretty much the same? Does a little bit of a difference after the decimal really matter?
You might be surprised.
The U.S. Census says the median price paid for a new home in January 2019 was $317,200.
Let's say you bought at that price, put 20% down and snagged a 30-year fixed-rate mortgage at 4.25%. Our mortgage calculator shows that you'd be paying $195,644 in total interest over the life of the loan.
But if you had settled for loan at 4.45% instead, you'd be looking at interest charges potentially totaling $206,404 — more than $10,700 extra.
Here are four tips for getting the best possible mortgage rate.
1. Look your best as a borrower
You'll score a low rate if you can convince a lender that you're a low risk.
So, check your credit score and take steps to raise it, such as paying down your debts to give yourself a lower debt-to-income ratio.
A mortgage company wants to know it will be repaid. If you can make the lender feel comfortable, you will get a sweeter deal.
2. Look your best as an earner
It's best not to apply for a mortgage until you've had the same employer for two years or more.
Know that lenders favor borrowers who are employed by businesses, versus people who are self-employed and freelancers.
If you work for yourself but your spouse works for a company, you might get a much better mortgage rate if the loan is taken out only in your spouse's name.
3. Put more money down
Sure, there are mortgages that require just a small down payment or even no down payment at all, especially when you're a first-time homebuyer.
But If you put down at least 20% of the cost of the home, you can land a lower interest rate.
Not only that, but you also can evade pesky private mortgage insurance.
4. Weigh your options
Shop, shop, shop around and compare rates. Don't just grab a loan from the very first company you talk to.
Be aware that interest rates vary across loan types. Adjustable-rate mortgages have lower rates than fixed-rate loans, and shorter-term mortgages beat 30-year loans.
In some cases, government-insured loans, such as FHA mortgages, will offer better rates than conventional loans.
Your mortgage interest rate is a choice that could be with you for years. Make a wise decision for maximum savings over that time!
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