Mortgage rates won’t drop significantly over the next few months, but you don’t have to postpone your home purchase plan.
this Mortgage Rate You will see online ads just based on the average of borrowers provided at a given time. according to Your financial situationyou can qualify for lowering rates. By taking steps Improve credit score And negotiate with it Multiple lendersyou can get better deals.
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In other words, if your budget with a home loan ratio of nearly 7% is currently challenging, there are ways to reduce it to 6% without waiting a few years to enter the housing market.
Lower interest rates save you money
Your 1 percentage point difference mortgage The rates can be translated into a monthly mortgage saving of about 10%, and save tens of thousands of dollars in your loan process.
For example, suppose you Buy a house A 30-year fixed-rate mortgage is down payment of 20% for $400,000. The difference between a 7% interest rate and a 6% interest rate saves you $210 a month.
Here is a quick look at the monthly mortgage payments compared to the same home with interest rates of 7%, 6%, and 5%.
How to get cheaper mortgage rates today
Taking some (or all) of these steps can reduce your rates by 1% or even more.
1. Improve credit score
If your credit requires work, consider taking steps Improve credit score Before applying for a mortgage.
The lender sees you Credit Score Determine whether you are eligible for a home loan and the interest rates you receive. FICO credit scores range from 300 to 850, with 850 being the best score. A higher credit score indicates that you used to manage your debt responsibly, so it reduces your risk to your lender. This can help you ensure lower interest rates and save a lot.
“The best mortgage rates and products are usually reserved for people with a credit score of 740 or higher.” Sarah DeFlorioWilliam Lavis Vice President of Mortgage Mortgage Bank.
According to 2024 Borrowing tree researchWhen borrowers moved from the “fair” credit score range (580 to 669) to the “very good” range (740 to 799), they shaved 0.22% of the percentage points. This rate difference helped borrowers save $16,677 in their lifetime of home loans.
2. Increase down payment
your down payment It is the amount you purchased the house in advance. There is a minimum down payment for every type of home loan. Typically from zero to 5%but a higher down payment means cheaper interest rates. That’s because when you contribute more to your loan, the lender has less risk.
Because down payment lowers your mortgage interest rate and builds your mortgage House net worthhome loan experts usually recommend paying at least 20% down payment.
3. Take out an adjustable interest rate mortgage
one Adjustable mortgage loansor ARM is a home loan with a fixed interest rate in its introduction period (such as five years). Once it is over, interest rates can rise or fall regularly for the remaining period.
The biggest attraction of weapons is that entry rates are usually lower than those of traditional mortgages. Usually, average 5/1 arm rate About 0.5% lower than the average price in the first few years 30-year fixed-rate mortgage.
4. Negotiate your mortgage rate
When you apply for a mortgage, you don’t have to go with your company Pre-approval. In fact, research shows that Multiple lenders Comparative discounts can save a lot of savings.
If you want to use this strategy, first submit a mortgage application with a lender that suits your criteria. Once you have some loan estimates on hand, use the best loan to negotiate with the lender you want to work with.
Loan officers can lower your interest rates and help you save Close Fee Or provide other incentives to get you on board. exist 2023 Lendingtree Survey39% of home buyers negotiate interest rates in their recent home purchases. Of that batch of buyers, 80% were able to get better deals.
5. Choose a shorter mortgage term
Nearly 90% of home buyers choose 30 years fixed mortgage period Because it provides the most flexible and monthly payment affordability. Payments are lower because they extend over longer schedules, but you can always invest more principals here and there.
But when you take out a long-term home loan, “you are picking up the lender’s money and the opportunity cost of investing elsewhere.” Nicole Ruethsenior vice president of the Rueth team, powered by Sports Mortgage.
Shorter loan terms, e.g. 10 years and 15 years mortgage and weapons, interest rates are lower, so you can now lower interest rates.
Choosing a shorter repayment period can help you save money because you will have less interest in the long run. But don’t do it House purchase error Choose shorter loan terms only at lower interest rates. Shorter loan terms mean you will have less time to repay the borrowed money, resulting in higher monthly payments, so it is important to make sure they fit your budget.
6. Purchase mortgage point
one Mortgage Pointalso known as a mortgage discount point, is the advance payment you can pay for the lender Low interest rates On your home loan. According to nearly half (45%) of home buyers used this strategy when they received mortgages in 2022 Zillow Research.
The price per point is 1% of the purchase price of the house, which usually reduces the tax rate by 0.25%. In a $400,000 home, you will pay $4,000 for a discount point. The lender can even let you buy four mortgage points to lower interest rates from 7% to 6%, although you have to spend $16,000 to get there.
To check if the strategy is worth it, calculate the total cost of points and compare it to the total monthly savings. In this case, when you pay $16,000 to buy 4 points and save $210 a month, you will take over 6 years to reach the breakeven point.
Some experts encourage any extra money you have to go to down payments rather than buying points. That’s because if you Houses for sale or Refinancing You will lose money before reaching the breakeven point. But the amount you spend on the down payment becomes Part of the equity.
7. Get temporary mortgage rate to buy
one Temporary mortgage rate purchase It involves paying fees at the close of the first few years of the loan term to lower your interest rate. Since the upfront cost is considerable, this strategy only makes sense if others pay this fee. Home builders, sellers and even some lenders may offer coverage of this type of buy to boost sales, especially when market prices rise.
For example, lenders may offer a “3-2-1” buy, where interest rates for the first year were cut by 3 percentage points, 2 percentage points for the second year and 1 percentage point for the third year. Starting from year 4, you will pay the full rate for the loan term.
Buyers often choose to buy temporarily and plan to refinance later. Your purchase funds are refundable and you can use them to close the fees when refinancing (if the rate drops).
6% is a “good” mortgage rate?
Most of us adults will only consider buying a home Rates will be reduced to 4% or below. However, most mortgage forecasts do not predict average rates drop Less than 6% this year.
Historically speaking Good mortgage rates It is usually on or below the national average. this 30-year fixed mortgage interest rate According to Freddie Mac, the average has been 7.72% since 1971. Last year, the average mortgage rate mostly fluctuated between 6% and 7%.
With that in mind, the acquisition rate in the mid-to-high 6% range is pretty good.
But affordability is related to your overall financial situation. And, because mortgage rates can change daily or even hourly, the definition of a “good” rate can change quickly.
“What matters is the ratio you can get today,” The truth about mortgage. Robertson believes that the only way to know if you get a deal is to talk to some different lenders and brokers and then compare their quotes to the daily or weekly average.
Read more: Still chasing a 2% mortgage rate? That’s why it’s time to let them go
Should I buy a home in 2025?
Buying a home is a personal decision, so it should fit your situation and budget. When you buy a home, consider a variety of strategies to lower your price and focus on the control factors. one Mortgage Calculator Can help you estimate how much you pay per month.
“If you’re happy with your monthly payment, you shouldn’t be fixed at a specific rate,” Deflorio said. “Especially because if the price continues to rise, you may be paying a higher purchase price because of waiting.”
Also, the market is particularly uncertain now, because there is a New Presidential Management. Trying to time the market can backfire.
“It’s too easy to get it wrong,” Robertson said. “The decision to buy a home should go far beyond the mortgage rate.”
