Though there are a lot of factors to consider when buying a home, the most determining factor in how much a mortgage will cost you is the interest rate. That little number can mean thousands of dollars worth of difference between the overall cost of a loan. So, that begs the question: How can you get the best mortgage rates?
How do you get the best mortgage rates?
Getting the best mortgage rate is not hard, as long as you are properly prepared. Consider the following factors that will help you get the best mortgage rate:
- Maintain a good credit score
- Have a favorable debt/income ratio
- Have regular work history
- Consider a co-signer
This is one of the most important factors in determining the kind of mortgage rate you will receive. Your credit score is an indicator of your creditworthiness or your history of borrowing money and paying it back. A high credit score indicates that you have regularly borrowed money in the past and have consistently paid it back on time. A low credit score can mean you struggled to make on-time payments, or you defaulted on a loan or expense entirely. Here are a few ways to either keep your credit score healthy or begin to build it back up:
1. Pay your bills on time
This is simple but so many borrowers struggle with it. Pay your bills when you said you would pay them. If there is going to be a month where you know a payment will be late, reach out and ask for payment options. Almost every single company, be it a utility company, internet provider, or cell phone carrier, has options to help you when you are unable to make the payment on time. These payment arrangements do not reflect negatively on your credit score, so they are worth the ask.
2. Have utilities in your name
Having a water or electric bill in your name helps to build your credit, as long as you regularly make on-time payments.
3. Use a credit card
This is a good option as long as you have self-control. When you use a credit card, you are borrowing money from your creditor and paying it back each month. You do NOT need to carry a balance to build credit. Pay the balance in full every month, avoid interest, and depending on the card you have, enjoy the associated awards program.
This will likely reflect on your credit statement, but having a lot of debt with not a lot of income looks really bad to mortgage lenders. Even if your credit score is decent if you are already responsible for a large amount of debt, many lenders will be hesitant to allow you to borrow more money. If you have large debts (like credit cards or large student loans), you will want to work on paying those down before a lender will offer you a great mortgage rate.
A consistent history of work makes lenders feel comfortable about offering you a mortgage with a great rate. This is especially true if you have been at the same job for more than two years, though steady employment for two years is often enough. If you have gaps in employment history or are recently employed, it may impact your ability to get a favorable interest rate.
This option works best if you have a spouse that is buying the house with you. Even if one of your credit scores is weak, if the other has a strong score with a solid financial background, you could still be in the running for a good mortgage rate. If one of you have an exceptionally poor credit score, you may want to work on improving it before applying for a mortgage.
The last thing to consider when trying to get a mortgage rate is a simple one, but there is a lot to unpack. You need to shop around for mortgages. Each individual lender, be it a bank or online lender, will be able to offer interest rates at varying levels. You owe it to yourself and your future finances to take the time to shop lenders and see who can offer you the best rate. Here are some lenders to consider:
- Local banks and credit unions
- In-house real-estate lenders
- Online lenders
These will likely be your first options in shopping for a mortgage, and they are good choices. If you already do business with either, they may be more willing to offer you a better rate. They may even be able to offer you special rates depending on what products you already have with them. Even if you do not do business at a bank or credit union, you can still inquire about a mortgage there.
Oftentimes real estate companies will have an in-house lender that is available to you. However, they are being included on this list because they often offer the worst rates and should be avoided if at all possible. You will almost always find a better option from another lender.
If you really want to be serious about shopping, online lenders are going to be your most competitive option. Since they lack the expenses associated with having lots of physical space, online lenders can regularly offer better rates that other traditional lenders simply are unable to match. It is also very easy to shop and compare rates online as well. What is even better is that online lenders are often competing for your business, which further makes the likelihood of finding a great rate more likely. If you are serious about finding the absolute best mortgage rate, online lenders are going to be a necessary part of your shopping experience.
You will never do too much work in finding the best mortgage rate. To view it as an investment is wise, as it can save you literally tens of thousands of dollars of the life of your mortgage. It can also help you avoid needing to refinance your loan later down the road since you will already have an ideal rate locked in. Take your time shopping, and you are bound to find the best mortgage rate for you!
Best Online Mortgage Lenders
Shopping for a mortgage is one of the most important strategic steps you can take in trying to secure the best possible interest rate for your loan, as well as avoiding as many unwanted fees as possible. If you have already started this process, you may have already talked with your local bank or credit union about options. You may have even talked to an in-house lender where your real estate agent is based out of. However, have you considered an online lender?
Why should I consider an online lender for my mortgage?
An online lender is going to offer some great advantages that a traditional brick and mortar bank would not be able to. The following is a list of just some of the benefits you could have by using an online lender:
- Access to better interest rates
- Online convenience
- Options for fewer fees
Since the overhead of an online lender is lower, they have the flexibility to offer better interest rates than their physical counterparts. A better interest rate is one of the most important things you can have when considering a mortgage.
If you have ever gone through the process of applying for a mortgage, you know it can be tedious. Your loan officer will ask you to fax documents, see documents, repeatedly see the same documents, and have you drive back and forth to the physical location as their needs come up. An online lender does not have that problem. You will be able to email or e-fax almost all of the information they will require to service you. In fact, some lenders will be able to pull information automatically if it is public record.
This goes along with better rates. They can offer products with fewer fees squeezed in because their overall cost of business is lower.
If you see these benefits and they seem enticing, then online lending might be for you!
What online mortgage lenders are the best?
Of course, just like with local lenders, there is a seemingly endless sea of choices from which to choose. The following list is some of the best that we were able to find!
- Reali Loans
- Better.com
- NBKC Bank
- SoFi
- SunTrust
This lender really takes advantage of the online space to bring you maximum convenience. They allow you to access the process of your loan and related information 24/7. No need to wait for their offices to open! They also do not try to sneak in fees into the process, you can expect there to be no origination fees or broker fees, helping keeps costs to a minimum. However, they do not service all loan types, as is the case with many online vendors. Specifically, if you are looking to do a USDA Rural Development loan, you will need to use another lender. If this lender is available for service in your state, they are definitely worth your consideration.
If you want a speedy, easy mortgage process, then Better.com is a fantastic choice. You have the option to keep the entire process between you and the internet, you do not have to speak to a loan officer unless you want assistance. Any help you receive is genuine help, none of their loan officers are commissioned off of the loans they service. If you need fast access to a mortgage pre-approval letter, they offer access to one in as little as 24 hours after having been approved. However, if you are looking to do certain government-backed loans, this lender is not an option for you. They will service neither VA loan nor USDA Rural Development loans. If those limitations are not a problem for you, this lender is another fantastic choice.
For the conveniences of an online experience with a touch of personal care and attention, NBKC Bank is a great compromise between the two. Their customer service does a great job of letting you forget that they are mostly a remote service! Unlike many other vendors, this lender services many kinds of government loans. In fact, they consider themselves VA loan experts, if that is a product you are eligible for. Unfortunately, you can expect some fees (like origination fees) that other online borrowers can avoid, but if a personal touch is a primary goal for you, it is worth the cost.
This online lender makes the list for being a great option for those that need alternative means for assessing creditworthiness. This can be ideal for those with poor credit but great finances, or those that are actually great candidates but just look bad on paper, like small-business owners. Again, as with many online lenders, this one excels in making your online experience a fantastic one, and they can do so without charging application or origination fees. Unfortunately, SoFi does not service any kind of government loan, including FHA loans, which may be a deal-breaker for many, including first-time home buyers. However, if it is not a deal-breaker and you need non-traditional means of credit to be looked at, this lender is a great online choice.
The final lender makes it on our list by not only being a strong, all-around online lender but by also offering a unique program. Their array of online tools is impressive, allowing much fo the mortgage process to be self-led with little problems. Unlike many of the other lenders on our list, they handle a huge variety of loans, including most government-backed loans. If you happen to be a doctor, they offer a unique program just for you! They consider that, even though you may have high-debt and little cash, your potential for earning extremely large sums of money in the future is very high, and can lend to you based on that assumption. They have very few drawbacks for most qualified lenders, though if you are needing alternative means of credit assessment, you will need a different lender. An overall fantastic online lender!
Though these are some of the best online mortgage lenders you will find, they are by no means the only ones available. You may stumble across one that meets your needs in a way that none of these lenders can. Consider this list a starting point as you begin to shop for the perfect online mortgage lender.
