If you are thinking of buying a home or apartment this summer, mortgage rates continue to remain at near-historic lows, with the average for a 30-year fixed-rate mortgage dropping below 3% in the first week of July 2021, according to Freddie Mac’s benchmark survey released on July 1.
How low will rates go? While no one knows for sure, there are certain steps borrowers should take before selecting a home loan. First-time borrowers, or anyone, can brush up on their financial literacy with help from agencies including the Consumer Financial Protection Bureau to ensure the loans they may be offered and potentially accept best meet their needs.
Here are four strategies to consider when seeking the lowest home loan rates:
Get your financial house in order
Make sure your credit score is as high as it can be before seeking pre-approval or approval for a loan. Lenders want to make sure you will repay the money you borrow. They do that by using your credit score, among other factors, to determine whether they will loan you money and how high the interest rate will be.
Generally, people with credit scores at 720 or higher qualify for the lowest rates. It’s important to note that some financial institutions won’t lend to anyone whose score is lower than 620. If your credit score isn’t as good as it could be, begin by paying down credit card and other debt to lower your overall credit-to-debt ratio. It’s best to only use between 10% and 30% of your available credit limit if you can help it. You can, of course, check your credit score right here through SavvyMoney!
Do your homework
Make sure you understand the different types of loans that are available and the pros and cons for each. For example, many people prefer fixed-rate loans because the payments typically stay the same over the life of the loan. With adjustable rate mortgages, your monthly payments can vary based on a number of factors.
The Federal Trade Commission has a great FAQ page that details what to consider when shopping for a mortgage at www.consumer.ftc./gov
Shop and compare mortgage rates
Like so many things in life, it really pays to shop around when searching for the best rate on a home loan. Unfortunately, it’s not a common practice. The reason? A lot of people don’t realize that just like car insurance, different lenders offer different rates.
A survey from Freddie Mac shows that nearly half of everyone who borrows money for a home never looks for a better rate. The research found that borrowers could save an average of $1,500 over the life of a loan by getting one additional rate quote and an average of about $3,000 for five quotes.
Consider putting down 20%
People who are able to make a down payment of at least 20% on a home, or by reaching 20% home equity, will typically avoid private mortgage insurance known as PMI. This insurance can add up to one percent of a home loan’s value to your monthly mortgage payment each year. Those with conventional loans can avoid private mortgage insurance by making a 20% down payment.
With reporting by Casandra Andrews