How to Get the Best Mortgage Rate?

06 Aug 2020

A mortgage is a salient investment that involves a lot of groundwork and attention to detail. However you are a first time home buyer or an experienced real estate investor,it is important to plan, estimate and shop around before taking a final decision. It involves numerous terms and factors which play a dominant role while obtaining the best mortgage rate.

How to Get the Lowest Mortgage Rate?

To get the lowest mortgage rate it depends on factors such as:

Improve on your credit score:

  • Simply, lenders will look into your credit score and they understand how responsible you are with your finances? So if your score is higher, the better your chances of securing the lowest mortgage rate possible.
  • Improving your credit score takes time. There are few tips that can give your credit score a quick, if modest, boost, but the benefits to your financial health can be huge in your search for the best mortgage rate. 
  • A 100-point difference in your credit score can save you hundreds of dollars per month on the same mortgage and tens of thousands of dollars over the life of the loan. 
  • If you can’t improve your credit and need additional financing, a bad credit loan may be a solid option for you.

Robust your down payment:

  • Saving up for a 20% down payment can be difficult, but it’s one of the most influential factors in getting the lowest mortgage rate and saving you a lot of money down the road.
  • It’s not just the lower rate that will save you money. If you can put down 20% or more, you won’t have to pay extra mortgage insurance.

Consider the length of the stay  in your home:

  • If you don’t have a plan on living in your new home for more than a few years, an adjustable-rate mortgage (ARM) can be the option where you get the lowest mortgage rate available.
  • Adjustable-rate mortgages generally have low, fixed initial interest rates for the first several years (typically the first 5 , 7, or 10 years), then adjust to the current market rate every year afterward. 
  • While your rate and with it, your monthly mortgage payment could potentially increase to a great extent down the road, homeowners who don’t plan to stay in their home longer than the early period can take advantage of those low rates.
  • If ARMs doesn’t suit your requirement, you can look into a shorter-term fixed-rate mortgage. Your monthly payments will be higher, but you will get one of the lowest interest rates, pay much less over the life of the loan, and build equity in your home faster.

What factors can influence your Mortgage Rate?

There are several factors which will determine the interest rate you get on a mortgage. Amidst  let’s consider the prime ones:

The FICO credit score of each borrower

  • Conventional lenders charge a higher interest rate for lower credit scores. Raising your score can help you qualify for lower rates.
  • Most lenders require a minimum credit score of 620 to 640. 
  • Typically, a credit score of 740 or higher puts borrowers in the best tier for a conventional loan program.

The amount of your down payment

It's possible to get a loan with as little as 3 percent down, but you'll have to pay for private mortgage insurance which protects lenders if you can't make your payment.

  • A better option is to find ways to put the most money down that you can—up to 20 per cent. One way to do this is to look into programs that provide loans or outright grants to fund down payments. You can search to see what programs you may be eligible for.
  • While saving more may not be an option, consider selling assets (such as a car) to help you put more down. If you're a first-time homebuyer you can also borrow up to $10,000 from your IRA without triggering the 10-per cent IRS early-withdrawal penalty.
  • Another option could be to turn to family members. A relative can give you up to $15,000 each year without facing any federal gift tax. So your parents could give you $30,000 total.
  • You've already been denied by one or two lenders. Most lenders typically use the same basic standards to approve you for a mortgage, but if you have been rejected or offered rates higher than you'd hoped for, find out why and do what you can to fix the problem.
  • The first step is to ask lenders why they are giving you a less than adequate rate to see if you can address the problem. While searching for a better rate, include banks, credit unions, and savings and loan associations. Also, consider turning to a certified mortgage broker to help you get a better rate.

Loan terms

  • The popular loan terms are 15-year and 30-year. The obvious difference between the 15- and 30-year fixed-rate mortgages is the term, which affects the length of the amortization schedule.
  •  This difference in term length is one factor that has a significant effect on the total cost of the loan. The other is the interest rate.
  • Because banks view long-term loans as riskier, 30-year mortgages often come with higher interest rates than 15-year mortgages. 
  • As of April 2020, the 30-year fixed mortgage rate is 3.68%. The average rate for a 15-year fixed rate mortgage is 3.18%. The interest rate, in addition to the size of the loan amount, will affect your monthly payments.

Type of interest rate 

  • A fixed-rate means the interest rate—the percentage of the borrowed amount, or principal, charged by a lender to a borrower—remains the same for the life of the loan. 
  • Fixed-rate mortgages will charge the same interest rates year after year. Borrowers can expect small variances with their monthly payments due to taxes and insurance. However, both the principal and interest amounts will remain the same for the entire repayment term.
  • A variable rate, also known as an adjustable-rate, periodically rises or falls to reflect the changes in the Consumer Price Index.
  • Variable-rate mortgage payments do fluctuate as the rate adjusts periodically. These types of loans tend to make monthly payments unpredictable.

Monthly Payments

  • For many borrowers, the lower payments of 30-year loans make it a comfortable option. 15-year monthly mortgage payments are higher, which may be unfeasible for homeowners with a tight budget.
  •  At first glance, 30-year mortgage loans appear cheaper. However, faster amortization and lower interest rates make 15-year loan options more affordable over time. 
  • Let’s take a look at the difference in monthly payments for the same loan size of $400,000.

mortgage Calculator

Loan Term

Interest Rate

Monthly Payment

Total Cost

15-Year Loan

3.5%

$2,860

$514,800

30-Year Loan

4%

$1,910

$687,600

Loan Size

  • The maximum loan a borrower can qualify for with a 15-year term can often be less than the amount for long-term loans. The higher monthly payments of these short term loans can increase your debt-to-income (DTI) ratio. 
  • Borrowers who wish to buy more than 1 house for investment generally choose 30-year loans, not just for the lower monthly payments, but also for the higher maximum loan sizes.

Which Mortgage Lender is Best for You?

There are many mortgage lenders out there competing, and more than one lender might provide good options for you. Home loans aren’t one size fits all. It totally depends on where you live, what kind of loan you’re possessing, and other financial circumstances, mortgages are a custom product. As you begin your research and comparison shopping, you can list the best mortgage lenders who provide a clearer path to the best mortgage for you. When you compare each lender, try to get quoted interest rates as well as the annual percentage rate (APR), which factors in other costs of the loan.

It's always best to contact multiple lenders for purchasing the best rate. What elements are taken into consideration before you look for a lender? Let’s encounter essential factors and focus on these elements which will help you find lenders with the best home loan rates simultaneously you can find with superlative customer support too.

Good Reputed: 

  • Lenders always develop a reputation, whether it’s good or bad. 
  • Enquire within family and friends about which lenders they have worked with. How are they competing in the market? Approach friends and family about their experiences.
  • Local lenders might not have a helpful presence on the web, so asking around can be crucial in helping you find the best mortgage companies in your area. 
  • Conduct a quick survey of your family and friends, particularly if they’ve recently purchased or refinanced a home. 
  • Ask whether they felt they understood the lending process and whether their agent was responsive and courteous.
  • Look at 3rd-party rating websites for more information. You can also check with the Better Business Bureau to see if there are any complaints against the lender. If there are complaints, look for how the lender responds to those complaints.  

Customer-centric service and Valuable guide: 

  • Check the responsiveness of the lender to your request for a quote.
  • Check if the lender listens to you and understands your preferences.
  • If the lender seems to have its own agenda or it doesn’t make you a priority, you might want to move on. 
  • Your mortgage might be the most significant financial transaction of your life, and you should feel comfortable with your lender. 
  • If you call for information and don’t receive it quickly, making it the least priority. Any lender who is unwilling or unable to answer your questions — or acts like it’s an inconvenience to do so — will probably be less than pleasant to deal with further down the line.

Mortgage options you need: 

  • Find out the lender has the type of mortgage you need. For example, if you want a USDA mortgage, does it offer those mortgages? If so, how often does it originate those mortgages? 
  • You want a lender with experience in the type of mortgage you’re looking for. 

Educational Resources: 

  • Can the lender offer educational resources? For example, offering mortgage calculators? providing necessary information. 
  • Various educational resources which the lender wants you to understand how mortgages work and make educated decisions. 

Technology Used: 

  • What technology is the lender using to speed up loan processing? 
  • For example, providing the application process online. Secured online documents. Even if you work with a lender in person, technology can help move the process along. 

Tips you can follow:

 Calculate Math and do your homework:

  Meanwhile, it's best practice to do your homework

  • Observe the market trends and make an analysis of the fluctuations and changes with each lender you choose, enter all the figures in the excel sheet to compare.
  • Read all the possible reviews you should probably take those experiences with a grain of salt. 
  • It is recommended balancing out your research with insight from a recognized lender.

Consider this pattern as you choose a lender. If something feels not genuine go with a different lender. You have all the rights to make your decision. You can choose a lender’s offer which is suitable and move on. 

How to Choose the Best Mortgage Lenders in California?

Choosing the best mortgage lenders in California is not as simple as sorting a list of companies from the st APR to highest. While the rest rate is critical to understanding the overall cost of any loan, it almost never tells the full story by itself. A home loan typically lasts as long as 30-years, which makes it important to approach mortgage shopping as the first step in a long-term relationship. This complexity explains the rating  on the lenders rating based on multiple criteria:

Cost of Expenditures

Closing costs and interest rates. While the cost of a mortgage is easily understood through its interest rate and closing fees, the quality of a lender's customer service requires more in-depth investigation.

Servicing & Options

By looking at things like Transparency, customer ratings and complaint data Loan types, features and lender flexibility. that a borrower would experience in the course of shopping and applying for a home loan, such as the number of available loan options and the platforms provided by lenders in order to keep applicants looped in during the origination process.

Minimum Lender Credit Score 

Your credit history influences your interest rate and your ability to obtain a mortgage. Lenders start with your credit score. Computer models generate credit scores based on how you have handled credit and debt in the past. If you’ve made timely payments and keep your balances low, you’ll have a higher credit score. Lenders have minimum credit score requirements for borrowers. Here are some minimum California lender credit scores.

Lender

Type

Minimum Credit Score Required

Bank of America 

Conventional

620

Bank of America

FHA

600

Axos Bank

Conventional

620

USAA

conventional

620

Wells Fargo

Conventional

620

Ally Bank

Conventional

620

US bank

Conventional

620

Current Mortgage Rates in California

Lenders base mortgage rates on how the economy and the real estate market perform. In general, when the economy is doing well, mortgage rates increase. When the economy slows down, mortgage rates drop to encourage more people to borrow. 

Lenders change rates on a day-to-day basis. They change rates in response to small market changes. Here are the current mortgage rates in California.

Current Mortgage Rates in California

Rates as of April 17th, 2020.

Comparing Different Types of Mortgage Lenders

When looking for the best possible mortgage rate and mortgage type, take into consideration the different types of mortgage lenders on the marketplace today. While you shouldn’t find anything drastically different between lenders, the details are still important. 

Banks

  • This category includes mortgage bankers that work for the major banking institutions (Bank of America, Wells Fargo, etc.). Mortgage bankers can provide direct links between lenders and the organizations that provide the capital for their mortgage.
  • There’s more security in using a mortgage banker, and if you already have a good history with the bank, you might be able to obtain a lower interest rate than on the marketplace. Here are the most popular home loan banks in California

This is the research on California's mortgage bank lenders,  finding data on which companies originated the most home loans over the past five years. The following table lists the most popular and active mortgage lenders in the state since 2013.

Top California Residential Mortgage Lenders, 2013-2020(March)

Company

Mortgage Originations

Average Mortgage Amount

Wells Fargo

548,080

$397,109

Bank of America

362,351

$365,281

Chase Bank

211,232

$374,654

Citibank

115,810

$416,786

While these lenders are certainly popular choices for both purchasing homes and refinancing mortgages. If you haven't found a lender that makes sense for you in this analysis, Still you can continue your search at one or more of these lenders. Use the same methodology as a starting point to better evaluate these and other mortgage companies.

Brokers

  • Mortgage brokers are essentially middlemen between borrowers and lenders. 
  • Using a broker means that you will have more access to competitive repayment terms and interest rates outside of specific financial institutions.

Credit Unions

  • Credit unions are essentially banking institutions brought back to the basics, and their mortgages reflect that. Mortgage rates through a credit union tend to offer lower rates than either bankers or brokers. 
  • Credit unions can be an appealing choice for anyone looking to find a mortgage with average to bad credit. They tend to operate as nonprofits and tend to keep loans in-house as opposed to utilizing third parties.

Non-bank Lenders

Non-bank lenders, specialize in mortgages and don’t offer other traditional consumer banking services. They represent a fast-growing segment of the mortgage market.

Bottom Line:

Depending on your income, financial needs make an analysis to figure out the affordability. Take your time and look at several homes until you find one that fits your needs and your budget. An experienced local real estate agent, mortgage lender or broker can help you navigate the process, especially in higher-priced areas.        

Furthermore do your own shopping, mortgage calculating and comparing rates between shortlisted mortgage lenders. Nevertheless, remember to maintain a good credit score, stable income. There is no hard and fast rule to borrow the total amount which you qualify for a mortgage, you can borrow less amount too. Take a wise decision and find your dream home!