10 Tips to Find Your Best Mortgage Rate

Whether you are moving to Montana and buying your first home or have gone through the process half a dozen times before, the journey toward buying a home is always different. A few years ago, it was relatively easy for most to secure a modest mortgage rate. Now, with rates changing and edging higher, there are still ways to secure the very best one you possibly can.

  1. Keep an Eye on Your Credit Score. One of the first documents your lender will look at is your credit score. Obtain a copy of your credit report and review it carefully so you can point out any errors (yes, it does happen) and also so you can know exactly what outstanding balances need to be reined in.
  2. Save for a Larger Down Payment. The rule of thumb for a down payment on a home is to have 20%. However, a 20% down payment is only necessary if you don’t want to take on the mortgage insurance requirement. Your down payment will depend on the type of loan you are getting, and for a conventional loan you will be required to put down 3%. VA loans and USDA loans require no down payment if you are eligible for them.
  3. Pay off Your Debt. One thing lenders look at is your debt-to-income ratio. If you are carrying a heavy load of debt in comparison to your income, you will be looked at as risky when it comes to financing a home. It might be difficult to determine if you should pay down debt or use that money to save for your down payment. Choosing to pay down high interest credit cards will help put you in a low DTI ratio which is more attractive to lenders.
  4. Decide Between Fixed & Adjusted. Choosing between a fixed rate mortgage and an adjustable rate mortgage has a big impact on how much you will pay over the life of the loan. A fixed rate offers the peace of mind of knowing exactly what your payment will be month to month. An adjustable rate allows for dips – but also peaks – in the market. ARM’s typically remain fixed for a number of years before they are subject to market fluctuations.
  5. Work to Actively Improve Your Credit Score. Since lenders use your credit score as a litmus test toward how well you will handle your future payments and debts, it’s important to work proactively and improve that number. By making timely payments on your credit cards, your home, your car, etc., your credit score should improve.
  6. Opt for a Shorter Term Loan. When all is said and done and that final mortgage payment has been paid, the borrower will have paid a considerable amount of money over the actual purchase price. Shortening the term of the loan will help you secure a lower interest rate and it will help to pay off your home in Montana more quickly, by more rapidly building equity.
  7. Raise Your Income. While you are whittling down your debts to improve your debt-to-income ratio, you can also attack the process from the other side. Focus on how you can maximize your income. Perhaps it’s asking for a raise at work, taking on a side gig or starting your search for a higher paying job. 
  8. Increase Your Down Payment. When you significantly lower your LTV (loan-to-value ratio) you are seen by lenders as a good risk and may then obtain a more favorable mortgage rate. The more you put down on your home, the less the lender will need to give you. Keep in mind that you don’t want to spend your last dime on your down payment; it’s wise to have a 3-month cushion to cover unforeseen expenses.
  9. Prepay Mortgage Points. Also called discount points, when you’re able to pay 1% of the loan amount, it is considered one point. You can also purchase these points in increments down to .125 points. When you pay these in advance, you lower your interest rate. If you plan to stay in your home long enough to break even, it’s a great way to save money.
  10. Bide Your Time. The idea of moving to Montana and into your dream home will require patience and planning. So, when you let yourself sit back and watch the market, you will be in a better position to find the lowest interest rates available and get the most bang for your buck.