Steps to Securing a Lower Mortgage Rate

Buyers seeking a lower mortgage rate don’t have to just wait for a market adjustment. Instead they can make changes in their personal finances that could help.

Here are the steps to increase a Buyer’s chances of qualifying for a favorable rate:

1) Read your credit report and improve your score, if necessary. Many prospective home buyers save up for years in anticipation of the day when they will purchase their own home. During this period, buyers can read their credit reports and address any discrepancies while taking steps to improve their credit scores. Lenders consider a host of variables to determine an applicant’s credit worthiness, and credit history and credit scores bear significant influence. The higher an applicant’s credit score, the more favorable mortgage rate he or she is likely to get

2) Take control of your debt-to-income ratio. Debt-to-income (DTI) ratio is what you owe in relation to how much you earn. The lower your DTI, the better you look to lenders. According to Bankrate, lenders typically want to avoid issuing mortgages  if the monthly payment will exceed 28 percent of their gross monthly income, and people who may be near that threshold for a given home may be denied a mortgage if their DTI is high.

Prospective home buyer carrying significant debt, including consumer debt like credit cards and/or student loan debts, should make a concerted effort to pay down that debt prior to applying for a mortgage. Prioritize paying off consumer debt before applying for a mortgage.

3) Maintain a strong employment record. Steady employment and consistent earnings make mortgage applicants more attractive in the eyes of lenders. If you are currently shopping for a home or about to make an offer, now might not be the best time to switch jobs or finance a new car.

Self-employed individuals and freelancers working multiple jobs can still qualify for a good mortgage rate, but they may need to provide more extensive documentation that indicates their earnings going back several years.

Individuals who have been working full-time for the same company for years may only need to provide W-2 forms from the two most recent tax years.

4) Shop around for rates. Rates may not fluctuate much between lenders, but it’s still worth shopping around for mortgage rates.

A study from Freddie Mac found that the benefits of shopping around for a mortgage rate were especially notable in 2022 compared to the decade prior, saving borrowers who took the time to shop for rates substantial sums of money.