Mortgage loans come into play when homebuyers do not have enough cash available to buy their dream home. Whether you are a first-time homebuyer, making improvements in your existing home, or investing in a vacation or rental home, these loans help you achieve your goals with financial support.
However, finding the best mortgage deal is crucial to make the most out of it. The interest rates and mortgage terms matter a lot since they dramatically influence the amount you spend. The better deal you get, the higher your chances and the more you will save. Below are the top 5 tips to get the best deal on your mortgage loan.
5 Tips to Getting the Best Deal on Mortgage Loan
- Make a Bigger Down Payment
Lenders may offer you a higher loan amount depending on your eligibility and credit score. In such a situation, you would want to borrow the maximum amount you are eligible for without spending your savings. However, the more considerable the loan amount you borrow, the higher will be your interest outgo. Therefore, try to save up for a more significant down payment and borrow only what you need. Borrowing less will save your interest outgo and make you eligible for a loan at lower interest rates. The lenders will also get ready to lend you money more easily with favorable terms and conditions.
- Boost Your Credit Score
Mortgage lending is largely based on various factors, particularly your credit score. It is a 3-digit number that credit bureaus calculate while considering your repayment history, credit portfolio, credit length, DTI ratio, credit utilization rate, and other parameters. Mortgage lenders check your credit score to determine your loan eligibility, interest rates, and loan amount. Remember, the best mortgage loan interest rates are available for those with a high credit score above 700. The higher your credit score is, the lower will be your interest rates.
Some tips to boost your credit score include paying your credit card bills and loan EMIs consistently, paying off your existing loans, minimizing credit card usage, maintaining old accounts, and diversifying your credit profile.
- Compare Lenders
While looking for a mortgage loan, you will find many lenders offering different loan amounts at varying interest rates. One mortgage deal that suited your friend may not be the best one for your situation. Therefore, it is crucial to compare lenders and find the most suitable one for your requirements and budget. Compare lenders based on multiple factors, including loan amount, interest rates, repayment terms, processing fees, additional charges, customer service, and others. Find the mortgage loans you are eligible for, compare their terms and conditions, and apply for one that appropriately fulfills your requirements.
- Maintain a Stable Record of Employment and Income
You will get the best mortgage deal if you show steady income and employment from the same employer. Lenders may ask you to show payslips to study your income and employment record for the last few months. If you are earning from multiple sources, your bank statements will show them to round out your loan application. Most lenders are susceptible to borrowers who have just started their careers since they may change jobs frequently. Therefore, if you are planning to apply for a loan soon, avoid changing your job for the time being.
- Reduce Your Debt-to-Income Ratio
The debt-to-income ratio, also called the DTI ratio, is the percentage of the monthly income you spend towards your regular financial obligations. Ideally, your DTI ratio should be less than 30-40% to get the best mortgage deal. The lender may charge you a higher interest rate if you have a higher DTI ratio than this threshold. Therefore, try to pay off your existing debts or reduce your financial obligations to lower down your DTI ratio and get a mortgage loan with favorable terms and conditions.
Applying for a loan is a complex process. However, it becomes much easier when you know what to look for. Therefore, use the tips mentioned above to get the best deal and shape your finances in the best shape possible. Choosing the right mortgage deal will help you build the home of your dreams without stressing your finances. At the same time, it gives you an opportunity to improve your credit score with easy EMI repayments.