Finding the Best Mortgage Rate

Plenty of experts are saying that the bottom has finally fallen out of the real estate market.  While the causes of this are broad, and include vast unemployment and foreclosures, the flipside of this equation is that it’s a great time to buy.  Prices are at an all-time low, a solid return on investment is possible if you plan to hang onto the property, and interest rates are favorable.  If you’re financially solid and thinking of making a real estate investment, here are some tips for getting the best interest rate on a mortgage.

Get preapproved:  While preapproval isn’t the same thing as being guaranteed a mortgage, it is an important step.  A preapproval is essentially the following: you meet with the bank, they review your financial situation and goals, and give you an indication of the amount they would likely lend you if the house selected meets the requirements and your financial picture remains the same.  In addition, the bank will typically grant you a preapproval letter, which can put you in a position to make offers and negotiate on choice properties.  Take their assessment seriously and evaluate the data when considering your overall real estate goals and how much you can spend.

Work with a mortgage broker:  Mortgage brokers are professionals that will shop around and help you get the best possible rate.  They charge a small fee, but the money they can help you save will often more than cover the fee. Brokers typically have relationships with bank loan officers and can get fast answers and special consideration. Don’t forget to meet with a few different brokers and find one whose approach you like and that you have good chemistry with.

Contribute the maximum down payment:  Mortgage interest rates vary according to the ratio of the loan amount to the total value of the house; the more favorable that ratio (that is, the less they have to loan you and the more the house is worth) the better the interest rate.  Contributing the maximum down payment (the ideal is 20%) will enable you to negotiate the best rates.  If you’re unable to make a sizeable down payment, consider delaying a purchase while you save up more.  The absolute minimum banks will accept is typically 5% for people with excellent credit.

Consider different loan lengths:  Loans come in standard lengths of 15 and 30 years.  Some financial institutions also offer 20-year options.  Loans with shorter duration will typically have larger payments, but these often go to the principal versus on interest.  Consider a shorter loan term if your finances allow it.

Look at home ownership incentives:  There are many programs available locally, regionally, and nationally that can help you reduce the costs associated with buying a new property.  For example, special mortgage programs and tax incentives are in place for many first time homebuyers.  Some programs may also be available for the purchase of rental property or multi-family houses.  Ask your mortgage broker and loan officers to provide more information.  Also consider contacting your local state housing department for any additional information.