Three tips for anyone looking to secure a loan.
Loans come with interest. That's a fact of life. But that doesn't mean you're at the mercy of the lender. You do have some control over your interest rate, which is great news for all those who are looking to secure a mortgage.
Odds are that you'll be borrowing a significant amount of money to purchase a house. With help from these three tips, you can ensure you're getting the best interest rate possible, which means more money in your pocket. And remember that shopping for the lowest rate is easy with Lendgo.
First, What Is Interest?
Not to be confused with the annual percentage rate, the interest rate is what you'll pay just to borrow money from the lender, expressed as a percentage. It doesn't include other charges that may be associated with your loan, which means the percentage isn't set in stone. It can vary from lender to lender and is largely dependent on the borrower's financial history.
Some factors that affect an interest rate are ones the borrower doesn't have a lot of control over, like supply and demand, policies by the U.S. Federal Reserve, and inflation. But there are some areas where a borrower does have more control.
Since there is some wiggle room on a loan's interest rate, how do you set yourself up to successfully negotiate a lower rate? By doing three things:
- Keeping a clean credit report
- Paying down your debts
- Comparison shop
Let's take a more in-depth look at each so that you can be well-positioned to secure a competitive interest rate when it comes time to buy your dream home.
Keep a Clean Credit Report
Your credit score is a significant factor in determining your loan interest rate. The higher your credit score, the more confidence you instill in the lender that you're able to meet your payback obligations.
A good credit score not only helps you secure a competitive interest rate right off the bat but can set you up to negotiate that percentage down, as you've shown you're able to successfully manage money.
So what's considered a high credit score? Bank of America's Better Money Habits says that while every lender is different, a score of 670 or above is generally considered good.
Before starting your loan process, be sure you know what your credit score is, and verify that all the information in the report is accurate. Since mistakes on a report could take months to fix, you want to ensure that all of that is handled well before you head into the mortgage process.
Pay Down Your Debts
Lenders carefully consider you debt-to-income (DTI) ratio during the application process. The ratio is just what it sounds like: how much debt you have compared to your income.
That means that it's better to have a low DTI, below 36%.
Of course, the lower your DTI is, the more negotiating power you may have. If you have some debt, that doesn't mean you'll necessarily be excluded from obtaining a loan, but it suggests that you are a higher-risk borrower. Such borrowers tend to be hit with higher rates, as the lender wants to protect itself.
While you are saving for your down payment (see 5 easy ways to save for a down payment), be sure you are also setting money aside to pay down any large debts you have. This will help lower your DTI, which makes way for a more competitive interest rate.
Since no two lenders are the same, the key to getting the best interest rate is to comparison shop. While you may get similar offers, it's important to remember that even a slightly lower interest rate has the potential to save you significant money.
Mortgage comparison shopping used to be difficult. You'd have to contact lenders individually, complete their paperwork, review their offer, and then quickly find another lender before the window for rate shopping closed and credit checks were counted individually. But not anymore, thanks to Lendgo.
The Lendgo difference.
Lendgo has changed the comparison shopping game by making it easy to find top lenders who are eager to work with you. When you compare two lenders, you'll likely find that one lender offers a lower interest rate, and that's great. But when you compare more than two, you may be able to pit multiple lenders against one another. By showing the offers other lenders have given you, you may be able to negotiate an even lower rate with a competing lender. Who doesn't want banks fighting for their business?
Thanks to Lendgo, it's easy to connect with different lenders and get your negotiations started.
Save Big With Low Interest
An interest rate that is lower by just a few percentage points has the potential to save you thousands of dollars over the life of the loan. Don't get saddled with high fees. Use these insights to help position yourself for successful interest rate negotiations before applying for any loan, especially a costly mortgage.
When you are ready to secure a mortgage, let Lendgo help make the process easier for you.