Obtaining a low mortgage rate can help you avoid paying hundreds of dollars in interest over the course of your mortgage. With mortgage rates expected to rise in 2023, it’s especially important for Texas homebuyers to shop around and secure the lowest rate possible.
In this blog post, we’ll provide 7 tips to help you get the absolute lowest mortgage rate in Texas this year. Follow this advice to maximize savings and make your home purchase more affordable.
Tip 1: Examine and Improve Your Credit Score
Your credit score is one of the main factors lenders use to determine your mortgage eligibility and interest rate. Before applying for a mortgage, order copies of your credit report and check your scores with the three major bureaus – Equifax, Experian, and TransUnion. If your scores are below 700, take steps to improve your credit before applying. Pay down balances, dispute any errors on your report, and avoid applying for new credit. Even boosting your score by a few points can mean a lower rate and monthly payment.
Tip 2: Increase Your Down Payment
The larger your down payment, the lower your mortgage rate will likely be. Come up with at least a 20% down payment to avoid paying private mortgage insurance (PMI) which increases your monthly costs. For conventional loans, a down payment above 20% can result in a incrementally better rate.
Tip 3: Choose a Shorter Loan Term
Shortening your loan term from 30 years to 15 years will score you a dramatically lower interest rate. The trade-off is you’ll have higher monthly payments because you’re paying the loan off faster. You can also opt for a 20- or 25-year term to find some middle ground.
Tip 4: Shop with Multiple Lenders
Work with several mortgage lenders and get rate quotes from each. Even a small difference of .125% in your rate can save thousands over the loan’s duration. Compare rates and lender fees to find the best overall deal. Get pre-approved with multiple lenders to expand your rate shopping power.
Tip 5: Look into Discount Points
Paying discount points in advance can help you get a cheaper interest rate. Each discount point (prepaid interest) typically reduces your rate by 0.25%. Discount points make the most sense for buyers planning to stay in the home long-term to recoup the upfront cost.
Tip 6: Lock in a Lower Rate with Temporary Buydowns
A temporary buydown subsidizes your mortgage rate for the first 1-3 years of the loan. Your lender can share buydown program options that reduce initial payments. After the buydown period ends, your rate will increase to the standard rate.
Tip 7: Improve Your Debt-to-Income Ratio
Lenders also look at your total monthly debts versus income. Pay down high credit card balances and auto, student, and personal loans to lower your DTI ratio before applying. This can help you qualify for better mortgage rates from lenders.
Follow these seven tips when shopping for Texas mortgage rates this year. Small tweaks can lead to big interest savings over your loan. For personalized guidance finding the lowest rate, contact the expert mortgage brokers at ZAPA Mortgage.