Tips for getting the best mortgage rates in an uncertain market
In an economic landscape that will never sit still, finding the best mortgage rates can feel like navigating through a dark maze with countless false exits. With fluctuations in rates that are impacted by a variety of factors from global economic shifts to changes in domestic policy, securing a favorable mortgage deal depends on having both savvy and strategy.
In this post, we’re going to arm you with the best tips to not only weather the volatility of the market in general but to come out the other side with a mortgage rate that more closely aligns with your personal financial goals. Whether you’re a first-time homebuyer or looking to refinance your fifth home, knowing how to adapt to the ebbs and flows of the market can make a significant difference in your consumer agility. This applies to everyone including people with great credit and those who are getting a home loan after bankruptcy discharge.
Tip # 1: Understand the market
The first step to getting the best rate is to have a clear understanding of the mortgage market dynamics, specifically if you’re trying to navigate the market during some economic turbulence. Some of the key factors to keep an eye on include inflation rates, the state of the employment market, and policy decisions by central banks, such as the Federal Reserve.
For example, when inflation is on the rise, lenders will typically raise interest rates to maintain a particular profit margin. Conversely, in times of economic slowdown, rates can potentially drop as a way of stimulating the economy and catalyzing borrowing and investment.
Additionally, government bond yields, particularly the 10-year Treasury note, can often serve as a benchmark for mortgage rates with considerable accuracy. A rising yield will generally mean higher rates on the horizon, while a falling yield suggests potential rate drops.
Tip # 2: Improve your credit score
Since your credit score is such a critical factor when working with a mortgage lender, making sure it looks as good as possible can help you score the best rates, and can save you substantial amounts over the term of the loan. Here are some tips for boosting your credit score:
- Pay your bills on time. Roughly a third of your credit score is based on your payment history.
- Reduce your overall debt. Your debt-to-income ratio, or DTI, is going to be incredibly important and can impact your rates considerably.
- Don’t make any new credit applications, since each application causes a temporary but measurable drop in your credit score.
- Monitor your credit reports intensely. Errors in your report can lower your score and make it harder to get optimal rates for your loan. Make sure you watch your reports from all three major bureaus, Experience, TransUnion, and Equifax, like a hawk.
Although credit score is important, don’t get discouraged if you’ve filed for bankruptcy because there are chapter 13 bankruptcy mortgage lenders.
Tip # 3: Increase your down payment
This is a tip that is not going to be possible for everyone, but if you can swing it, it can make a big difference in your mortgage rates. A larger down payment indicates to your potential lender that you pose a lower risk, as you’re bringing more to the table before having financing fill in the rest.
Representing a lower risk of default can incentivize lenders to offer better rates since investing more of your own money upfront lowers their risk. Bringing a larger down payment also means you automatically have more equity in your home, which can help provide more overall financial flexibility and security.
If you’re able to bring 20% or more of the price as a down payment you typically won’t need any private mortgage insurance, which can lower your monthly expenses.
Tip # 4: Consider different mortgage types
You’ll usually have the choice between shopping for fixed-rate mortgages and adjustable-rate mortgages, and if you’re navigating an uncertain market, choosing one over the other could lead to much better terms.
Fixed-rate mortgages will lock in an interest rate for the entire loan term, which is typically between 10 and 30 years. This makes budgeting easier since your payments will stay the same no matter the market conditions.
Adjustable-rate mortgages start with a fixed interest payment for a predetermined period, which is generally lower than fixed-rate mortgages. However, after the initial period is over, the rate can climb substantially, which then causes your monthly payment to spike as well.
Tip # 5: Shop around and negotiate
This is perhaps one of the most important tips, but also one of the most overlooked. Even in a steady and stable market, you should always shop around at more than one lender, and be prepared to negotiate.
Start by getting loan estimates from several lenders. This will give you a good sense of the range of rates that you’re likely to see, and it can help give you some leverage when comparing quotes. Also, the rates aren’t the only thing that’s going to impact your mortgage numbers, make sure you fully understand how the fees and points work for your particular lending offers.
Finally, leverage competing offers against each other, and don’t be afraid to negotiate closing costs. If you feel like you want to delegate all of this and save some time, you can get a mortgage broker who may have access to deals you can’t get.
Tip # 6: Lock in your rate at the right time
Timing is going to be critical for locking in your mortgage rate, particularly in a market that is seeing some turbulence or volatility. A rate lock agreement with a lender can help ensure that the interest rate on your offer won’t change between the offer and closing.
Monitor the market trends, for indications of rising rates, and try to act ahead of those rises. Stay in contact with your lender for valuable market insights, and keep an eye on that rate lock period, since most will only last for 30 to 60 days. Above all, be ready to act when you see the signs pointing to “go”.
Final thoughts
You know by now that trying to navigate a turbulent housing market can be incredibly daunting, but with the right strategies you can lock in a rate that suits your needs more closely. Revisiting these tips when outlining your home buying strategies can help you approach the process with a more informed foundation, helping you to secure the best possible for your home in the current market.