4 Best Ways to Get an Affordable Mortgage Even When Rates Are Higher
Mortgage rates are considerably higher than they were at the height of the pandemic, with the average interest rate on a 30-year mortgage now well above 5%. As rates climbed, many would-be buyers were discouraged by the fact that borrowing to buy a home became much more expensive.
The good news, however, is that even if a mortgage carries a higher interest rate today than it did a short time ago, that doesn’t mean you should give up on your dream home. home ownership. Mortgages still remain fairly cheap by historical levels when looking at the long term rather than just the past few years – and there are ways to get an affordable loan if you follow a few key tips.
Here’s how you can ensure your mortgage costs stay within your budget, even with today’s high rates.
1. Improve your credit score
One of the best ways to get a mortgage you can afford is to improve your credentials as a borrower. Your credit score can have a huge impact on the cost of your loan, so you should do everything you can to raise it.
This may include being aggressive in paying down debt to improve your credit utilization rate, asking creditors to remove black marks from your credit history (which they may be willing to do voluntarily if you are primarily a good customer) and correct any errors on your credit report that could lower your score.
Improving your credit is one of the best ways to maximize the chances of your loan being affordable because credit has a huge impact on your mortgage rate.
2. Save a bigger down payment
Saving a big down payment can also help ensure that your mortgage doesn’t come with too high a monthly payment.
A larger down payment helps you lower mortgage costs in a number of ways. Obviously, when you bet more money, you don’t need to borrow as much, so you can reduce your costs, because your main balance is lower.
A larger down payment also reduces loan risk for lenders, so they will generally offer you a lower interest rate than if you paid less. And if you can increase your down payment enough to equal or exceed 20% of the value of the home you’re buying, you can avoid having to pay for private mortgage insurance. This will offer considerable savings, since PMI can be an expensive additional monthly cost that is typically around 1.00% to 1.50% of your loan balance.
3. Choose your mortgage carefully
You will also want to make sure you get the right type of loan and from the right lender. Different mortgage providers charge different rates. Therefore, shopping around and getting quotes from many banks, credit unions, and online lenders can help you get the best deal possible.
Certain types of mortgages can also be more expensive. For example, an FHA government guaranteed loan may have higher upfront fees than a conventional loan, you may want to avoid this type of mortgage if you are a qualified borrower who can be approved for a competitive loan. . it does not come with a government guarantee.
4. Buy a cheaper house
Finally, if you can reduce the cost of the home you buy, you can also reduce mortgage costs. Again, the amount you borrow will be less, so it will be easier to ensure your monthly payments are on budget. And you may be able to get a more competitive rate on a smaller loan that poses less risk to the lender, especially if you’re buying a lot less home than you can afford.
By following these four steps, you’ll be more likely to get the right mortgage for you so you can still buy a home, even when the mortgage market isn’t as favorable as it could be. .
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