Taking Advantage of Record Low Interest Rates
Essential information for new homeowners when getting their first mortgage loan
(MADISON) – Now is the time for first time homeowners to take advantage of record low interest rates. Before they take out a mortgage loan, consumers need to spend time preparing. Purchasing a home is one of the biggest financial decisions any consumer makes during their lifetime, and it’s not an easy task. Below are five tips offered by the Wisconsin Bankers Association to new homebuyers to help their journey from renting to owning go smoothly.
- Know your budget. In general, housing costs should not exceed 28 percent of your pretax income. That number includes principal, interest, taxes, insurance and fees. When creating your home buying budget, remember to factor in property taxes, utilities, maintenance and homeowners insurance. Knowing how much you’re able to spend on your house puts you in a better position when shopping around for interest rates. If you can afford it, negotiate a larger down payment or shorter term to reduce overall interest costs.
- Check your credit score. Use annualcreditreport.com to verify that you don’t have any black marks on your credit rating that may cause you to have a higher interest rate. If your credit score is a bit low, try to lower your debt ratio. This number is the percentage of your income that goes towards repaying debt each month. A lower debt ratio usually results in a lower interest rate for loans.
- Get preapproved. To improve your chances at getting a lower interest rate, ask your bank to pre-approve you for a mortgage. This process is free at most institutions, and it will also boost your credibility with real estate agents and sellers because it shows you’ll be able to get financing. Note: a preapproval usually has a 30-90 day time limit. After that, you’ll have to submit your application again.
- Shop around. As you shop for the perfect house, shop for the perfect mortgage. Don’t only compare the interest rates, however. Look at loan origination fees, administrative fees, title insurance, settlement charges and any other costs added to the price of the house. Calculate the costs of buying a home versus building, as well.
- Negotiate. This is particularly helpful if you have an established relationship with the bank you’re obtaining the mortgage loan from. They’ll have a better understanding of your financial goals and be able to recommend the best mortgage product for your circumstances.
Even if you’re not a first time buyer and are looking to use current record low interest rates to refinance, these tips can help you walk out of the bank with a great rate and the key to a new home.
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