Buying a house is a big decision for people. You have to contemplate a lot of things before taking the final step. You would not be able to purchase a house directly without any financing. Here comes the real trick. How would you get the best deal out of mortgage rates? You should have the basic knowledge to go onboard.
Some may say that it is just like comparing products while shopping. However, it’s much more than that. The industry examines various factors to determine whether you are eligible for a mortgage and at what interest rate you would get the loan. Your mortgage rate can vary depending on how you fare regarding the determining factors. It can reduce or increase the amount you have to pay every month and the total interest rate on the purchase of the house.
To find the best deals, you would also need to find a trustworthy and experienced lender. If you are buying a house in Portland, Sammamish Mortgage is the best choice of mortgage lender Portland has. They are offering mortgage programs to customers over the Pacific Northwest for the last 28 years. They offer you low rates and service fees for the best-matched loans for you.
Types of Mortgages
There are three types of mortgages the lender may suggest you, depending on factors like your credit score and employment history –
- Prime Mortgages
These mortgages are for customers with a high credit score. Generally, you would need a minimum credit score of 670. But, the limit of credit score eligibility may vary with different lenders. Along with that, you have to pay a considerable amount of down payment (10% to 20%). The logic is that customers with better credit scores and debt-income ratios are unlikely to cause a default. Since there is low risk for the lenders, they would offer low-interest rates.
- Sub-prime Mortgages
It’s for customers with lower credit scores and ratings falling in the range of 580-669. As you can see, they have growing risks for the lenders. Thus, they have to pay a higher interest. Most of the sub-prime mortgages are adjustable-rate mortgages (ARM). They charge a fixed rate for an initial period and then move on to a floating interest rate for the remaining terms of the loan.
- “Alt-A” Mortgages
These are called no-doc or low-doc loans for a reason. The borrowers don’t have to show many documents of their incomes, assets, and expenditures. So, there is a high chance of fraudulence as both the lender and borrower can exaggerate the details to secure more mortgages. They have a high LTV (loan to value) ratio and less down payment. They also have relaxations in case of higher debt-to-income ratios.
Ways to Get Best Mortgage Rates
- A Better Credit Score
The lenders would always offer better interest rates to borrowers with a good credit score. So, make way for improving your score by clearing due credit card bills and paying off previous debts.
- Savings for Down Payment
When you pay more down payments, your mortgage and interest rates are lower down. A 30% down payment might reduce your interest rate by a minimum of 0.5%.
- Prepare All the Documents
Gather all the information you need before calculating the mortgage. You should be aware that there is no discrepancy in the process.
- Debt-to-income Ratio
The lenders check the debt-to-income ratio very strictly. You need to show a stable income and employment proof for the previous two years. Those who are self-employed tend to have higher interest rates due to this issue.
- Mortgage Calculator
You can input your details into a mortgage calculator to figure out how much would be your monthly payments. You would be able to decide on a better mortgage option suitable to your scenario.
- Closing Costs and Private Mortgage Insurance
Do not forget to check out the closing costs and private mortgage insurance, if any. It would contribute to the total cost of buying the house.
- Fast Actions
It’s a limited period offer as the rates might change with the market situation. Close the deal quickly if the conditions are suitable.
You should keep in mind that even if you are eligible for more loans, do not apply for more than what is needed.
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