How to Get the Best Mortgage Rates

There are literally thousands of mortgage lenders eager to accept your business. While mortgage rates are somewhat governed by federal and state laws, as well as global and local economies, there are significant discrepancies when you compare offers from different lenders. You can use the competitive nature of the mortgage industry, as well as some knowledge of how the industry works, to get the best mortgage rates in your area.

1. Improve Your Credit Score

You may think that your credit score is as good as it can get. You’ve been current on all your payments, you have a good mix of credit type and a long history of responsible borrowing. But if you’re like 4 out of 5 consumers, you’re wrong. According to recent studies, most borrowers have material inaccuracies, outdated items or flat out mistakes on their credit reports. These can range from misattributed delinquencies to improperly reported accounts or outdated addresses.

This matters because the higher your credit score is, the lower interest rate you’ll qualify for. So it literally pays to pull your credit report and check it for inaccuracies or items you may have forgotten about it.

2. Consider FHA Loans

FHA loans are among the most common types of mortgages in the U.S. - and for good reason. FHA loans are guaranteed by the federal government, meaning that if you default, the lender won’t lose as much money. Because of the lower risk, you’ll often get much better interest rates than with a conventional loan.

To qualify for an FHA loan, your credit score will have to be at least 500 and you’ll have to pay some of your mortgage insurance premiums up front.

3. Beware of ARMs

With the federal interest rate at historical lows and the economy in the doldrums, it makes almost no sense to go for an Adjustable Rate Mortgage (ARM). An ARM may get you a few percentage points knocked off your interest rate for the first few years, but as the economy improves, your APR is bound to adjust upwards. Your better off locking in a 15 or 30 year fixed mortgage for now.

4. Comparison Shop

Diversify your pool of possible mortgage lenders. That includes checking online and offline banks, talking to banks and credit unions and speaking with your current bank as well as its competitors. Keep the quotes you received from competing banks handy and don’t be afraid to mention it if a lender quotes you something astronomical. They can either explain how the lower offer you received is deceptive, or they may be motivated to offer you a discount to win your business.

5. Increase your Down payment

It goes without saying - the less you borrow, the less you pay. Do your best to save up so you can make as large of a down payment as you are comfortable making. Not only does this help you avoid Private Mortgage Insurance (PMI) premiums, it also gives you a jump start on building home equity.