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California Business Journal
Best Mortgage

5 Ways to Get The Best Mortgage Deals

Most experts predict that mortgage rates will continue to remain stable throughout 2021 and beyond.

by Annette DuBois, California Business Journal
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It’s hard to imagine that the mortgage and housing crisis in America was nearly 12 years ago, and property values sharply declined even with the Federal Reserve cutting interest rates. This made it very risky for people to start investing in real estate, and homeowners ended up owing more on their homes than their properties were valued.

Thankfully those years are behind us, and many experts predict that mortgage rates will continue to remain stable throughout 2021 and beyond. For home buyers or real estate investors looking to enter the market, we’ve put together some helpful guidelines on securing the best mortgage deals from lenders.

How to get the best mortgage deals at a glance

To get the best mortgage deals possible, generally you should meet most of these qualifications. We’ll explain these qualifications in the article, but here’s a quick idea of what to expect.

  • Have a credit score over 760 (800+ is preferred).
  • Have a loan less than $424,000.
  • Make a downpayment of at least 20%.
  • Opt for a 15-year loan rather than a 30-year loan.
  • Use market predictions when considering fixed or variable mortgage rates.

How to qualify for the best mortgage rates

Most people won’t check off every qualification listed above, but you should be able to meet most of them for obtaining an optimal mortgage rate. With the current mortgage rates being so low in recent months, it could be a great time to start planning your next home purchase, so we’re going to explain the various things you need to consider (and lenders will consider) when shopping for mortgage loans.

Your FICO credit score

Your credit score is one of the main determining factors in a financial lender’s decision. Lenders are risk-averse, and expect to be compensated for taking risks. So if you have a low credit score, you will have higher rates.

With a good credit score, you can save tens of thousands of dollars over a loan term, so ideally your credit score should be a minimum of 760 to obtain the best mortgage rates.

Property value and mortgage amount

There are generally three categories of mortgage loans, which are:

  • Conforming: Loans of $424,000 or less.
  • Super conforming: Loans that can go up $636,150 for people living in expensive areas.
  • Jumbo: Loans even higher than super conforming loans.

So generally, your location can impact the mortgage rates you’re able to obtain. If you lived in an expensive county, for example, your rate would generally be lower than a jumbo loan, but buying homes in a rural area can also affect your mortgage rate.

And of course, the value of your mortgage will determine your monthly payments, so you really want to consider exactly how much you’re confident paying per month for the next 15 (or 30) years.

20% down payment

As mentioned earlier, lenders are highly risk-averse, and will increase your interest rate to compensate for any potential losses they may face. The more you’re able to put down upfront, the less you’re considered a lending risk.

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You should aim for at least a 20% down payment, or else you may only be able to find mortgage loans with higher interest rates and mandatory PMI (private mortgage insurance).

Length of loan term

A shorter loan term will significantly cut your interest rate. It’s almost always best to opt for a 15-year loan term rather than 30-years. It will also help greatly to understand how mortgage amortization works, and the difference between paying interest versus paying off the principal balance.

Fixed versus variable mortgages

A fixed mortgage rate is set in stone, and your interest does not change. This can be beneficial if you get a fixed mortgage rate during a low mortgage rate environment, and it looks like rates will go up in a few years. Just as well though, you could get a fixed mortgage rate during a high-rate environment, and get stuck with higher interest even if mortgage rates go down.

A variable rate mortgage will typically start with a lower rate than fixed rate mortgages, but your payments and interest will reflect the current market. So in a rising-rate environment your payments will go up, but they could also go down.

Tags: AmericaEstateFederal Reserveinsuranceinvestinginvestorslendersloanloansmortgagepropertiesreal estateStone
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Annette DuBois, California Business Journal

Annette DuBois, California Business Journal

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