Best Residential Mortgages
A mortgage is the largest financial obligation most Americans will ever take on. Unlike a typical car loan, securing a lower interest rate on a home loan can make a huge difference over time. For example, on a $250, 000 mortgage, an additional one-half of a percentage point adds $23, 427 in extra interest paid over a 30-year loan.
It’s easier than ever to shop online for a mortgage, with new products and services promising speedy results. You may also want to use mortgage brokers, especially if you have less than perfect credit or nonstandard income sources. These brokers can offer personalized service by working with multiple lenders to find the best loan options for you — sometimes at better interest rates than if you applied with the lenders on your own.
Three experienced mortgage brokers shared with NerdWallet their suggestions on how to get the best interest rate and a mortgage that fits your needs.
Tidy up your personal finances
Getting your financial house in order before applying for a mortgage will help you get a lower interest rate. One of the best ways to do this is to boost your credit score, says Joe Phalen, senior vice president and divisional sales manager at Guaranteed Rate in Chicago. This means paying bills on time, avoiding new debts and checking your credit report to correct any errors, says Phalen, who has nearly 25 years of experience in the mortgage industry.
When determining how much you can borrow, mortgage lenders look at your debt-to-income ratio (using your gross, or pretax, income). Phalen encourages consumers to reduce their debts, such as credit cards or student loans, so they can afford more home. “The rule of thumb is borrowers must have a debt-to-income ratio of 43% or less to get a mortgage, ” he says.
It’s also important that you understand your qualifications and how they will affect mortgage pricing and availability, says Dane Moler, division manager at Primary Residential Mortgage in San Francisco. These qualifications include your credit score, income, available assets and job history, he says.
“If you have very strong and very basic qualifications, you can shop online for the low-price leader and generally succeed, ” he says. “However, if your qualifications are complicated or borderline, you will have better success working with a lender who will give you better, more personal service.”