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As a mortgage processor for over 12 years, I have uncovered some tips from loan officers that I have worked with. I thought it might be helpful for those house shopping, so here are 4 Ways to Get a Lower Mortgage Rate.
1. Adding as little as one point to your FICO score could save you thousands
Conventional loan programs are priced by your FICO score in 20 point increments, and the interest rate is determined by using “loan level price adjustments.” So for every 20 points your score drops below 740, additional fees are charged for the same rate and the lower the score, the more fees paid. For example: with a FICO Score between 640 and 680, you would have to pay and additional $4,500 in discount point fees on a $200,000 loan putting down 10% than if your score was 740 or higher. As an alternative to the discount points, you may be offered a higher interest rate (likely .25 to .75% higher) than if your score was over 740.
2. Financing with adjustable rate mortgages
Bet you didn’t know that these were still around, but they are. If you purchase a home for a period less than five years, you could benefit from using this type of mortgage. This loan product will have a fixed initial terms with a “teaser rate” that is fixed for 5, 7, or 10 years. Just remember, you need to be sure that you will be out of that loan before the end of the initial term or any savings that you reaped over the teaser rate time frame could vanish quickly.
3. A quicker loan closing
Interest rate locks are generally quoted in 30-day increments. The longer the time period required for the rate to be locked, the higher the rate. At my company, we have a neat program called Certified Homebuyer that reduces the time needed for a rate to be locked. We actually will pre-underwrite your file completely and provide you with a full blown mortgage approval BEFORE making an offer. This allows the loan to be closed quicker with less stress. Sometimes, there are factors beyond our control (seller needs more time to close for example) that might not allow for a quick closing, but it’s an advantage to have this program in most cases.
4. Borrow less by making a bigger down payment
Even if homeowners do not make the mandatory down payment of 20% to eliminate Private Mortgage insurance premiums, every 5% that the down payment is increased, the mortgage insurance premium drops. These are also driven by FICO scores so the higher your score, the better your mortgage insurance premium.
These are just a few tips to consider when home and mortgage rate shopping. Consult with your local mortgage loan processor or loan officer to consult you based on your personal situation.
