First-Time Home Buyer Guide 2023: Getting the Lowest Mortgage Rate

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The property market has been somewhat of a rollercoaster over the past few years. During the pandemic, the mortgage rate fell to below 3%, which caused a massive influx of buyers and drove real estate prices up. After the global economy started to recover, the Federal Reserve gradually raised the mortgage rates to 4.75-5.00% in March 2023. At the same time, property prices remained relatively high. 

This makes many people reluctant to purchase a house; buyers are hoping for another lowering of the federal funds rate to make the purchase more economically viable. However, financial experts believe that the new rates are here to stay. According to the Chief Economist of the National Association of Realtors, Lawrence Yun, mortgage rates will not go down significantly any time soon, and the prices for real estate may rise even further. 

That is why now might be a good time to shop for a house — however, it’s important to secure the lowest possible mortgage rate in your particular situation. Here are a few tips on how you can do that. 

1. Improve Your Сredit Score

The credit score is one of the primary factors lenders consider when deciding whether to approve a mortgage application. A high rating can result in lower interest rates and better terms.

There are a few things a first-time buyer can do to improve their credit score apart from paying their bills on time:

  • Check credit reports for errors. Reviewing data for errors and reporting them to credit bureaus can correct inaccuracies that lower the credit score.
  • Become an authorized user. Becoming an authorized user of someone else's credit card can help establish a credit history and improve your credit score.
  • Keep credit card balances low. A high balance can increase credit utilization and lower your score.
  • Avoid opening too many new accounts. Numerous new accounts can be a red flag to lenders and influence their negative decision.
  • Request a credit line increase. Asking for this can increase credit limits and improve your rating.

2. Save Up a Decent-Sized Down Payment

A large down payment can lower the overall cost of a mortgage, including interest rates and monthly payments. Traditionally, a 20% down payment is considered ideal. This would qualify the buyer for a lower interest rate and help avoid the need for private mortgage insurance (PMI). Even an extra 5% can significantly affect interest rates and monthly payments. However, not everyone can put down such a sizable down payment, especially buyers who may have other financial priorities.

First-time buyers may be eligible for a grant to help them make a purchase. There are federal, state, or local government programs in place that often provide opportunities to reduce costs. However, to qualify for such grants, buyers must meet some specific requirements. When applying for such a grant, maximum income, minimum credit scores, and home purchase price are considered. Some programs may require buyers to live in the property as their primary residence for a certain period without the possibility of renting it out.

3. Compare Multiple Lenders

To find the best interest rates, loan terms, and fees, you can compare multiple lenders. You never know what can affect the mortgage price, so look closely at your options.

Moreover, you don’t have to limit yourself to the location of residence. Other countries may have more favorable mortgage rates, better real estate selection, and additional benefits for homebuyers. Most countries have no restrictions on foreign ownership. Moreover — they welcome foreign investors. One such country is UAE and especially Dubai. You can find all categories of Premium Real Estate there, sometimes even cheaper than in the US and Europe. Dubai also has a favorable tax regime for foreigners, so you might be able to save even more money.

4. Find a Mortgage Broker

For homebuyers who don't have the time or interest to shop around for mortgage rates, a broker can be a great help. They will do all the legwork of searching for the best deals available in the market so that homebuyers don't have to. Mortgage brokers have knowledge of the property market and can provide advice or recommendations, and their primary role is to help borrowers secure financing for a home purchase.

Some brokers may work in cooperation with real estate agents or companies that help first-time buyers find homes. You can delegate the whole process to such a team and only show up to sign the documents. As with any service, mortgage brokers charge a fee for their work (1-2% — often paid by the lender). 

5. Consider a Shorter Loan Term

Another tip to decrease mortgage costs may be considering a short-term loan. While the 30-year-fixed mortgage rate is now around 7%, the same figure for 15-year mortgages can go as low as 5%

That is why, a short-term loan may be a good option for buyers if they can make higher monthly payments. You can repay the loan quicker and save money in interest payments during the loan period. You can also choose an adjustable-rate mortgage, which gives you the opportunity to save a lot in the first stage of the loan. 

6. Check Out the Fixed-Rate Mortgage

Another option is to stick with a fixed-rate mortgage. It allows a buyer to lock in the interest rate for the whole loan period. Usually, the rate lock is granted for a period from 30 to 60 days, and it guarantees that the interest rate will remain the same until the loan closes. 

Rate locks can be free of charge, but sometimes they can come with additional costs, especially if they apply for a longer time. However, paying for such a rate lock can be worth it if market interest rates are expected to rise during the buying process. In any case, when agreeing on a rate lock, borrowers should ensure they understand the terms of the agreement, including any fees or penalties for breaking it.

In Conclusion

Planning is crucial when it comes to buying real estate and getting a mortgage. Use an online mortgage comparison tool to find the most attractive offers. Maximizing your down payment and enhancing your credit score can improve your chances of getting favorable rates. 

It is also important to carefully study all the paperwork to make sure to avoid hidden fees. Finding a trustworthy mortgage broker can also be valuable to secure the most favorable option and rate. Don’t limit yourself to the country of residence — buying property across the border can present you with additional benefits. 

Using these tips can be a good start on your journey toward getting your dream home on reasonable terms.

Discover your dream home in German Village, OH.

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April 2, 2023
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