The housing market has been a roller-coaster ride for everyone over the past couple of years. On the one hand, rates are sharply down relative to where they were just a few years ago. At the same time, many lenders are becoming much more strict in terms of who gets approved and who does not.
While the possibility of securing a good mortgage deal is always there, many people who are shopping for a cheap, fixed-rate mortgage find that the options for taking the right action are not always crystal-clear.
Sometimes, having too many choices can make the decision-making process even harder. The problem is made worse for many people due to less-than-perfect credit scores.
If you are looking for the cheapest fixed-rate mortgage possible, here are 8 tips to help guide your way:
1. Take advantage of low rates: When interest rates are low, there can be no better incentive for getting on board with a new mortgage. Low rates, compounded with the fact that average home values (read: prices) are down in most markets, mean that the time to get a mortgage is now.
2. Know how you will be judged by lenders: Lenders have become much more strict in terms of whom they will loan to. This is the result of many lenders having engaged in the practice of sub-prime mortgages, whereby they were handing out mortgages left and right to people regardless of their financial history. Understand that your credit score plays a big part in how they view you.
3. Lock in your rates: If you choose to get going with a new mortgage at low rates, be sure to lock in your rates for the long term. This means a 25 or 30-year mortgage. When rates are low, there is no reason to have an adjustable mortgage.
4. Improve your credit score: If you are told by prospective lenders that you are not eligible for the lowest-available interest rates, it may be worth holding off a while to work on raising your credit score.
5. Shop around: To get the best rates, it is a good idea to get quotes from 3 to 15 lenders. Resist the temptation to cave under the pressure that each one will undoubtedly exert on you to close with them. Each lender has its own way of making their offer look like the very best you are likely to see: resist the temptation to go with the first few you talk to. Just get on the phone, ask them to send you their terms and move on to the next one.
6. Compare lenders’ offers apples-to-apples: As mentioned earlier, different lenders have different ways of making their offer seem like the best choice. Don’t buy the hype. Instead, once you have received their respective terms, type everything up in Excel or put it on paper. Create a column for interest rate, column for closing fees, misc. fees, term length, type of mortgage (fixed or adjustable), etc. Only then can you compare the offers apples-to-apples.
7. Use a mortgage calculator to find out the effect of different rates: You can find a number of handy mortgage calculators online. Use them to see the effect that different rates and terms have in terms of the total interest you will pay over the lifetime of the loan.
8. Prepare your paperwork ahead of time: Once you have selected a lender and been approved for a cheap mortgage loan, be sure to prepare all of the necessary paperwork in advance of your meeting to sign the papers.
Finding the cheapest fixed rate mortgages will save you tens of thousands of dollars over time: it is worth doing your homework to find the best one for you.