How To Get A Lower Interest Rate
Lenders see you as riskier if you have a low credit score. You may have a history of missed payments, so a lender may compensate for the risk your score presents by offering you a higher interest rate.
There’s more than one way to secure a lower interest rate from your mortgage lender. Anything you do to lower the risk for your lender will usually lower your rate. Let’s explore a few ways to get a lower interest rate.
Raise Your Credit Score
The first action you can take toward lowering your interest rate is to raise your credit score, which is a three-digit number that provides lenders an at-a-glance summary of how you use credit. If you have a high credit score, it means you usually make payments on time and don’t borrow more money than you can afford to pay back.
Here are some ways to raise your credit score:
- Always make your minimum loan and credit card payments on time.
- Limit the amount of money you put on credit cards.
- Pay down as much of your debt as possible.
- Avoid applying for new loans when you’re preparing to get a mortgage.
Get A Government-Backed Loan
In many cases, you can also lower your interest rate by choosing a government-backed loan – a VA loan, FHA loan or USDA loan – over a conventional loan, which isn’t government-insured. If your home goes into foreclosure and you have a loan that’s insured by the federal government, the government agency backing your loan will reimburse your lender.
Keep in mind that mortgage insurance can factor into your payment with both conventional loans and some government-backed loans, so it’s important to weigh all your options.
