So you’re taking on a mortgage, or considering it – congratulations! Also, good job. Educating yourself in financial matters is super smart (though seriously daunting and intimidating sometimes). When it comes to interest rates, it can be easy to dismiss the steps you can take to try and get better rates. However, there are many things you can do before even applying for a mortgage to improve your ability to get a lower interest rate.

It begins with keeping the following in good standing: credit, debt, savings, income, and other assets.

Having a low interest rate is likely going to be important to you in the long run. While a high interest rate may be easy to overlook when purchasing a home, you may feel the financial impact of a higher rate down the road. A higher interest rate will result in you paying more over the lifetime of your mortgage².

Good credit can result in lower interest rates when you go to purchase a mobile home². Many people don’t realize how important it is to keep your credit score up or to work on getting into a good credit score range.

When applying for a mortgage or preapproval, it’s also a good idea to keep an eye on your credit report and to promptly correct errors¹. You should avoid doing anything that may negatively impact your credit throughout the process of purchasing a mobile home; this includes applying for new, additional lines of credit¹.

While your credit score isn’t the only key to a low interest rate, it is one of the key factors². Your credit report is the main record lenders have of how you spend money. It tells them whether you pay on time, if you pay what is owed, and how consistent you are. It’s riskier for them to lend when your credit score is low in terms of your perceived ability to make payments. It’s similar to a school giving a better scholarship based on grades. While it’s not always fair to those who really have to work for a high grade versus those who are naturally good test takers – both got the same grade. The same is true with credit. If your credit has seen better days, you can improve it with hard work.

Another key factor is your debt¹.  A lot of debt may deter a lender from lending to you, or may negatively impact the terms of the loan. Lenders calculate your debt to income ratio, so you definitely want to pay off as much debt as you can before applying for a home loan. Many people only see their home as an investment and not as debt, which it is. A mortgage is probably the biggest loan you will have in your life. Owning a home can be rewarding, but it is also a big responsibility. The best thing to do is either consolidate or pay off debts that you can, or at least have proof that you can consistently pay towards your debt while also making your mortgage payments.

Your savings and income may also impact your interest rate and the terms of our loan.  Starting to save is obviously amazing when considering a mortgage. It also can look good when your interest rate is being decided. Savings can demonstrate to a lender that you can pay your mortgage payments. This can also be shown if you have consistent income. Having a steady job or creating a savings budget could help you when trying for a better interest rate. Assets such as land, cash settlements, etc. could also positively impact that way that you appear to a lender.

Understanding your credit is the key to reaching for a better interest rate. Don’t just accept a high rate. You’ll pay for it later. Do what you can to make your credit shine!

Start Improving Your Credit Today!

1. Consumer Financial Protection Bureau. 16 August 2018. How does my credit score affect my ability to get a mortgage loan? https://www.consumerfinance.gov/ask-cfpb/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan-en-319/

2. Consumer Financial Protection Bureau. 16 August 2018. Seven factors that determine your mortgage interest rate. https://www.consumerfinance.gov/about-us/blog/7-factors-determine-your-mortgage-interest-rate/

So, you’re wanting a place to call your own? That’s exciting! Have you done your homework? It’s going to take some preparation and research to purchase a home. We want you to be well-informed and encourage you to be your own advocate while researching and making home purchase decisions.

We’ve gathered some resources and information about being a first-time homebuyer and have provided them below. While by no means all-inclusive, we’re  hoping these resources will help get you started!

• You’re probably familiar with FHA Loans. Loans insured by the government, more specifically the Federal Housing Administration. FHA Loans generally require lower down payments but do require the payment of mortgage insurance premiums which protect the lender if a borrower defaults.
• If you’re an active or previous member of the military, a VA Loan may be something to consider. Loans offered to credit qualifying veterans, or their surviving spouses if service and entitlement requirements are met. There is a VA loan no down payment option.
• If you’re interested in living in a rural area as designed by the USDA Rural Guaranteed Housing Program: a USDA Home Loan may interest you. USDA loan programs are designed to improve and grow rural areas and you don’t have to have a farm.
• If you’re interested in living in an energy efficient home, you might want to consider programs that finance energy saving home improvements as part of the mortgage. Some are offered to first-time homebuyers.
• Lastly, check your local home loan options! Inquire with local lenders who know the area in which you would like to live for financing options. You might be able to find a local down payment assistance program, or other alternative program that fits your needs!

Consider a Mobile Home!

Still on the fence? Wondering what you’ll gain by being a homeowner? Check out these benefits of being a homeowner!

Credit is complicated. There are no two ways about it. The best approach to dealing with credit is to educate yourself. This takes time and sometimes it means making mistakes, but don’t let the past dictate your future, push forward.

If you’ve had a hard time with telling the difference between fact and fiction when it comes to credit — this sheet is for you.

Fact:

– Credit reports list your payment history

 – Credit reports from the three nationwide credit bureaus can be obtained free once a year

– Credit scores are separate from credit reports, however credit scores are typically generated by credit bureau reports

– If YOU check your score, it does not lower your score. If a lender does, it can lower your score

Fiction:

– The number of credit cards a person has boosts their credit

– The higher the income, the better the credit

– Paying bills late will always lower your score

– Bad credit is forever

From fiction to fact…

“The number of credit cards a person has boosts their credit”

Your credit score does not factor in how many credit cards you have, but it does factor in credit card balances, credit history, late payments and the amount of credit card balances in relation to total available credit. Having more credit cards provides an equal opportunity to pay on time and to miss payments. Again, it all goes back to responsible and timely spending. It’s the quality of your spending, not the quantity (it’s the amount being charged, not the number of credit cards).

“The higher the income, the better the credit”

How much income a person makes does not correlate to how they spend it.   Your credit report shows if you pay your bills on time and the frequency in which you do so.  While making more money may help you meet your payments, a credit score is dependent on how you practice financial responsibility.

“Paying bills late will always lower your score”

Don’t make paying bills late a habit. Most credit card lenders provide a grace period after the due date to make a payment. However, when paid after the grace period late payments are generally reported to the credit bureaus and can lower your score.

“Bad credit is forever”

Bad credit does last, but not forever. It usually ages off credit reports after 7 years, but that time can be extended if you have been through bankruptcy. That’s a good amount of time, but you can pay off debt.

Start Building Your Credit!

When we started our mortgage, I was shaken up by the number of years and total of payments behind owning our home. It seemed so big, and I could only see it getting bigger with interest. In the first year of owning, we tried to simply get used having our monthly payment. But after researching I wanted to be a little more proactive in paying off our home.

Pre-paying your mortgage is situational. It’s not a one size fits all, but it can save you a lot of money in interest if you are in a financial position to do it. For me, it makes sense to pre-pay an extra fifty dollars a payment to cut time and interest off my total amount owed. Let’s dig in and look at when paying ahead can be beneficial.

If you’ve found your forever home. If you know you plan to stay in this home for a long period of time, then paying it off faster may be worth it. That way you are putting money into something that will benefit you and your family for years to come.

You’re in a financial situation where you can focus on debt. When you boil it down, the difference between paying off your mortgage sooner or later is when you want/need to have more money. What I mean is that if you are in a tight spot financially now with lots of bills and financial responsibilities you probably would benefit more from paying your regular payment.

On the other hand, if you don’t have a lot of bills or financial responsibilities and you’ve got savings you may want to pay down your mortgage debt now. This may give you less money in the future, but you also will have less debt. It’s always a catch 22. Moral of the story: if it won’t hurt you to add even 10 dollars a month, it may be worth considering. If it’s going to hurt you financially it’s not worth it – this is voluntary, not mandatory.

You want to eliminate as much interest as possible. In light of my own financial philosophy, reducing the amount of interest I pay over the life of the loan is a major motivation. Interest is a quiet debt, and for that reason I like to address it head on. The extra amount you end up paying by letting interest compound is significant. So, whenever I see an avenue to reduce my mortgage debt and the amount of interest I owe on that debt – I’m willing to do it. Even if it means having less money to spend now. I’d rather have less or no debt now than more money, but everyone is different.

You have some savings. It’s important to have some cushion. If you’ve been able to save, then pre-paying may also be appealing to you. That way you’re not spending the only money you’d have for emergencies and you are focusing on prioritizing your funds. Many people recommend having 3 – 6 months of earnings in savings, but this isn’t realistic for everyone. You should know based off your budget how much you might need if an emergency happened, and you needed enough money to last several months without a paycheck.

This is not an exhaustive list, but it does cover some of the main motivations behind pre-paying your mortgage. Remember the amount does not have to be big. You’d be amazed what pre-paying 10 dollars a payment for a year could do to decrease the total interest you will pay on your mortgage loan over time. Would pre-paying be a good option for you?

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