Getting a Better Mortgage Rate In Austin
Getting a Better Mortgage Rate In Austin
Multiple factors affect your mortgage rate, including the mortgage type, your credit score, and your down payment. Your credit score essentially tells lenders how responsible you are, so the higher your score, the better your chances of securing the cheapest mortgage rate. Your credit score is the metric lenders use to determine your ability to pay on your loan. If your credit score is lower than average (generally 600 and below), you won’t score as good of a mortgage rate as someone with excellent credit.
Need to improve your score? Here are a few things you can do.
Check your credit.
Start by requesting your credit reports from the three credit reporting agencies; you're allowed one free copy every year. Requesting one report from each agency every four months can show you how your credit changes over the year. If you're short on time, ask for all three at once. I’m not going to lie; this is probably my least favorite part of the home buying process. I’m sure many of you feel the same way. I’ve had a few slip-ups with late payments in my early 20’s, not because I didn’t have funds in my account, but because I was negligent with keeping track of all my accounts and organizing my financials. Unfortunately, financial planning and understanding money and finances, in general, wasn’t part of the curriculum for many of us growing up. You can educate yourself now!
Dispute any errors.
Next, look for errors, signs of fraud or outdated information. Are the accounts familiar? Are all balances accurate? Is a closed account listed as open? If you spot an error, you'll need to submit your dispute in writing to both the reporting agency and the company that provided the information. This past year I got a notification from the financial app Mint. It told me that my credit score dropped 100 points--I was freaking out because I was in the process of searching for another investment property and that meant I wouldn’t be able to apply for a loan. I did some more research and realized that my mortgage payment didn’t go through from the previous month. My bank never notified me! Instead, a financial app told me over 30 days later. I disputed this default in payment with the credit bureaus and my score jumped back up. If your credit score drops significantly, don’t let it slide! Dispute it immediately!
Stop credit activity.
Until you apply for a mortgage, it may be a good idea to cease some credit-related activity. That doesn’t mean you need to stop your credit spending altogether. It just means you'll want to skip any large purchases, avoid applying for any new accounts and try not to switch jobs or make any other significant life changes. So, if you want to buy a house, hold off on buying something like a car. If you are about to switch jobs, you should still apply with a lender but let them know your situation, and they will let you know what your best options are. If you are getting a substantial pay increase, the lender will probably tell you to wait a couple of months to apply. If you plan to go from your salary job to working for yourself, it’s probably best to buy a house before you switch out of that job.
Pay down balances.
One of the most critical factors in determining your credit score is the amount you owe compared to the amount of credit you have. Ideally, you don't want to use more than 30% of your available credit. If you can, work to pay down balances if you're using more than this. I’m not someone who is going to take the time each month to manually manage my spending. That’s why I love the app Mint; they let me know my credit limit on each credit card I have and let me know how much I’ve used each month. It also monitors my spending and keeps track of a budget for me.
Good credit can take time to build, but regularly reviewing your information and working to rectify past errors will put you in the best possible position when it comes to getting an optimal rate on your mortgage. Even if you have a low score, you still may be able to buy a house! It’s worth looking into now before interest rates get too high. Right now scores seem to be at around 4.75%--if you applied for a loan with your lower credit score now, your rate might be around 5-5.5%. But if you decided to wait it out another year to increase your credit score, rates will have probably risen to around that amount anyway! The point is, gather as much information as you can before you make assumptions on your buying power. There are many ways to get creative in real estate, don't tell yourself you can’t do something off of assumptions. Feel free to reach out to a lender or me with any home buying questions.
Much of this information is from the wonderful Melanie Hadley with Cornerstone Lending! She works with many of my first-time buyers and is a great local lender and resource for first time home buyers.