When budgeting for a home purchase, one of the first factors you will have to consider is the mortgage payment. If you are making the jump from renting to owning, this will be a new expense for you, and you will want to be sure that it is affordable.
Once you have determined that you are going to buy a home, it is important to take the necessary steps to get the best mortgage rate possible so you don't end up paying more than you need to.
1. Keep your credit score in good shape
When applying for a mortgage, one of the things your lender will take into consideration is your credit score. Generally, those with scores higher than 700 are able to obtain the best possible rate and terms on a home loan, so this is what you should strive for. If your score isn't in the 700s, that doesn’t mean you shouldn’t buy a home, but just be aware that you probably won’t get the lowest rates advertised. You might want to consider repairing your score before buying a home because if it is too low then you will have a very unfavorable rate.
2. Contact multiple lenders
If you are looking to obtain the best possible rate on a home loan, it would be wise to get in touch with more than one lender. While you might believe that all lenders will offer the same rate, this simply isn’t the case. Though they may not vary much, different lenders will offer different mortgage rates. With that said, you’ll want to sit down with at least two to three lenders during the home buying process because even a couple percentage points can make a big difference over the life of a 30 year loan.
3. Make a big down payment
One of the easiest ways to secure the best mortgage is to make a large down payment. The more money you are able to give your lender up front, the less a risk they will view you, which means they could be willing to provide you with not as strict terms. A large down payment has other benefits as well, as you are able to own your home sooner and avoid having to purchase private mortgage insurance.