When getting a mortgage for a new home, many of us tend to simply go with our main financial institution. However, sticking with the easiest route doesn’t necessarily lead to the best results. Comparing different mortgage providers and finding the best mortgage rates can save you a considerable amount of money.
That being said, just doing your homework on mortgage providers might not get you the lowest rate. The rate you’ll get will depend on a number of factors relating to your financial health. So what rate can you actually qualify for?
In reality, not all of us have a perfect credit score or the down payment size that both you and your lender wish you had. To help you make sure you’re prepared to get the best mortgage rates possible, we’ll take a look at some factors that play major roles in determining the mortgage rate you can get pre-approved for.
How does the mortgage pre-approval process work?
During the mortgage pre-approval process, you’ll need to hand over a number of documents that support your financial status and provide personal identification. Once you’ve done that, the lender will tell you the maximum price you can afford on a home, as well as the mortgage rate and corresponding weekly/bi-weekly/monthly payments. Moreover, the mortgage rate selected for your first mortgage term will usually be locked in for 90 to 120 days.
How does my credit score affect my mortgage rate?
One of the first things that providers will look at is your credit score. Essentially, your score is an indicator of your overall financial health and ability to pay back debt. Therefore, mortgage providers take on less risk when lending out to individuals with higher scores.
The ideal credit score will lie between 700 and 900. If your score’s within this range, you have a good chance of getting the lowest rates with most lenders. Often, the Big Five banks will consider applications from consumers with credit scores between 600 and 700.
On the other hand, if your score is below 600, you’ll probably have to get a mortgage from a trust company or private lender. And you can expect your mortgage rate to be considerably higher. Sound unfair? If you’re wondering why you’ll be paying a higher interest rate, you should consider the situation from the lender’s perspective. Your lower score means you pose a greater risk to the lender.
The bottom line
Your mortgage pre-approval rate depends upon your financial situation. Having a good credit score can help you get a better rate. And if you shop around, the more likely you’ll get the best rate.