How to Get the Best Mortgage Rates in 2024: Tips and Strategies
That is why being able to secure the best mortgage rate possible can make or break the house-buying experience. This may seem trivial, but a few points higher or lower can add tens of thousands to the cost you pay over time for rates on your mortgage. How to keep the best rates in 2024? The housing market is constantly changing, so knowing how to get a good one is crucial. In this guide, we’ll discuss what factors go into mortgage rates, becoming mortgage-ready, and securing the best rate you possibly can.
Understanding Mortgage Rates
The Advantages of a Fixed-Rate Mortgage vs. Adjustable-Rate Mortgages (ARMs)
There are fixed-rate mortgages and adjustable-rate mortgages (ARMs) to consider when looking at mortgage rates. A fixed-rate mortgage enables you to create a budget knowing your month-to-month expense will not change with interest rate adjustments. On the other hand, an ARM kicks off with a lower interest rate for several years (5 to 10 typically), at which point it can adjust annually as market rates shift. Though adjustable-rate mortgages (ARMs) generally start with low rates, this arrangement also means your payments will be more volatile than for fixed-rate loans as interest costs could jump upwards if central bank lending rates do.
How Economic News Drives Mortgage Rates
In 2024, home rates will continue to be influenced by economic factors like inflation and the monetary policy of the Federal Reserve. Higher rates usually are the result of inflation, which erodes money’s value and forces lenders to seek even more compensation. In contrast, if the Federal Reserve reduces rates to boost the economy, it could possibly lead to lower mortgage costs. You can use this information to see when the low tide in interest rates is happening, which will allow you to apply for a mortgage at just about as good a rate as possible.
How To Get Mortgage Ready
Improving Your Credit Score
The number one thing that determines your mortgage rate is what rates are at the time, but after or simultaneous with interest rates, it mostly depends on credit score. Lenders use it to evaluate your risk level as a borrower. A better credit score can make you eligible for reduced interest rates, saving you thousands of dollars across the term. If you want to boost your credit score in time for a mortgage application, make an effort to pay down outstanding debts and avoid missing any payments or opening new lines of credit. Keeping a close watch on your credit report for mistakes and challenging errors can also help to increase that score.
Saving for a Down Payment
Your mortgage rate is also impacted by the size of your down payment. That’s because a bigger down payment gets you lower financing rates, since the lender takes less risk. Not only will being able to put 20% down on a home save you from having to pay for private mortgage insurance (PMI), but it can also help in snagging a better rate. But if the rest of your financial profile is solid, you’ll get a good rate even with a smaller down payment.
Reducing Debt-to-Income Ratio
Part of what lenders will look at is your debt-to-income (DTI) ratio, which compares all your monthly debts against how much you make a month gross. This means the lower your DTI ratio, the more responsible you are with debt and income—so it appears to lenders that you’re a risk-free borrower. Work on lowering your DTI and paying off debts or increasing income before applying for a mortgage. Your DTI should ideally be under 43% to get the most favorable rates.
Pre-approval for a Mortgage
A key part of getting the lowest rate on your mortgage is being pre-approved for a loan. Pre-approval is an extensive review of your financial history by a lender who offers you a conditional commitment for that loan amount at specific interest rates. Pre-approval gives you more leverage as a buyer, and it also guarantees an interest rate for 90 days, so if rates go up while you are shopping, yours is locked in.
