Are you planning to buy a home for investment purposes? Before you can start your property search, you need to have some form of financing.
Sure, you could just take out a mortgage from any lender and hope for the best, but wouldn’t it be wise to get the best possible mortgage rates? Of course!
Luckily, getting great rates is not as complicated as it might sound—all you need to do is take the necessary steps and find trusted mortgage brokers who can help you.
10 Steps to Take to Find the Best Mortgage Rates for Your Home Loan
So, how do you get the best mortgage rates? Here is what you should do.
1. Assess Your Financial Situation
Before you start searching for mortgage rates, take the time to assess your current financial situation and understand how much you can afford for a home purchase.
The first thing that you should look at is your monthly income and expenses. This will help you determine how much you can afford to spend on your mortgage each month.
Another thing to consider is the amount of debt that you have. Do you have any student loans, car loans, or credit card debts? If so, you should factor in the amount that you will need to pay every month for these debts into your budget.
2. Save Up for a Higher Down Payment
The higher your down payment, the better mortgage rates you can expect. A bigger down payment will reduce the amount that you will need to borrow, which could potentially benefit you with a lower interest rate.
So, when negotiating with your local mortgage brokers, make sure to emphasize that you are willing to put a large amount of money down. This could help you get the best deal possible.
Smaller monthly payments will also make your investment more lucrative in the long run. Your mortgage will not eat up as much of the income your property generates, leaving more money for other things you need to grow your investment.
3. Prepare Documentation of Your Income and Employment
Most brokers will require proof of your income and employment before they can start the process of your loan application. This is to show that you have the necessary means to pay off your mortgage on time.
In order to make sure that you get approved quickly, make sure to prepare all the necessary documentation ahead of time. It is also important that these documents are up to date as mortgage brokers might not accept outdated documents.
The usual proof of income and employment that mortgage brokers and lenders would require are the following.
- Paystubs from the last six months
- Tax returns from the past two years
- Bank statements for the past three months
When you have all these documents on hand, it will be much quicker for you to get pre-approved for your loan.
4. Determine Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is an important factor when it comes to getting the best mortgage rates. This ratio reflects how much of your income will be going towards debt payments, such as student loans and credit cards.
To find out your DTI ratio, simply divide all of your debt payments per month by the gross income that you earn every month as well. So, for example, if you make $5,000 a month and your total debt payments are $2,000, then your DTI ratio will be 0.4 or 40%.
Most lenders prefer DTI ratios of no more than 45%, as they need to ensure that you will be able to pay off your loan on time.
While some of them allow ratios of as high as 50%, they would still look at some compensating factors, such as the borrower having a savings account with enough balance to cover several months’ worth of housing expenses.
If you do have a high DTI ratio, then you should work on paying off some of your debt first before applying for a mortgage with a broker.
5. Improve Your Credit Score
When applying for a home loan, your mortgage broker will likely run a credit check. This is to determine how well you have managed your finances in the past, and if you have any negative marks on your credit report.
A high credit score of 700 or above could provide you with more loan options, as well as lower interest rates. But if your score is below 600, then it would be best to review your credit reports for any errors and work on improving them.
You can do this by paying all your bills on time, reducing the amount of debt that you owe, and taking steps to improve your overall financial health.
This may take some time, but having a good credit score will pay off in the long run when it comes to getting lower mortgage rates with brokers.
If there are any errors in your credit report, make sure to dispute them with the credit bureau immediately. This could help you improve your score and increase your chances of getting approved for the best mortgage rates.
6. Know the Types of Mortgages That Are Available to You
There are several types of mortgages that you can use for real estate investments, and each one comes with different advantages.
Depending on your financial situation and the type of property you are looking to invest in, certain mortgages may be more suitable for you than others.
The most common types of mortgages include conventional home loans, VA loans, FHA loans, and jumbo loans. Knowing about these loan options can help you make an informed decision when it comes to picking out a mortgage that will work best for your needs.
Another deciding factor when finding trusted mortgage brokers for your home loan is that they can also offer you non-traditional mortgages, in case it is difficult for you to qualify for a conventional home loan.
For example, private mortgage brokers can give you access to the following.
Second-Home Loans –
These are mortgages that can be used to buy a second home, such as a vacation property or an investment property.
Portfolio Loans –
You can use these loans to purchase multiple properties with just one loan.
Debt-Service Coverage Ratio (DSCR) Loans –
These loans allow you to borrow more than what the property is worth, based on your income.
Bridge Loans –
These short-term loans can help you cover the cost of down payment while you wait for your home sale to close.
Bank Statement Loans –
Here, your bank statements will be used to determine your income instead of relying on your credit score.
Full Documentation Loans –
These mortgages require you to provide more financial information, such as tax returns and other documents, in order to receive the best mortgage rates.
Not only that these types of loans are easier to apply for, but they also have high loan-to-value (LTV) ratios. This means that you can get a loan that will cover most of the property value, so you can save on interest costs.
7. Understand the Difference Between Fixed-Rate and Adjustable-Rate Mortgages
When it comes to mortgages, you have the choice between a fixed-rate mortgage and an adjustable-rate mortgage (ARM).
With a fixed-rate loan, your interest rate will remain the same over the course of the loan. This means that your monthly payments will not change as market rates fluctuate.
On the other hand, ARMs are subject to changes in market rates. This can result in higher or lower monthly payments depending on how rates move up or down.
To get more favorable terms, you may want to look into getting a hybrid ARM, which combines both fixed and adjustable rate features. It is always wise to discuss both options with your lender or broker before making any decisions.
Talk through the pros and cons of each so you can make an informed decision about which one works best for your goals.
Regardless, the top mortgage brokers can offer you favorable terms when taking out these types of mortgages.
8. Take the Time to Compare Rates for Each Type of Loan
Once you have a list of financing options for your real estate investment, it is time to compare rates.
Comparing mortgage rates is more than just looking for the lowest number—you should also look at how long it takes for the loan to amortize and whether you will be able to pay off the loan early.
Trusted mortgage brokers are transparent and are always willing to discuss the terms of the loan and provide you with a competitive rate. So, do not hesitate to reach out and discuss your needs with them.
9. Think About Private Mortgage Insurance
Depending on the type of loan you get, there could be an added expense of private mortgage insurance (PMI). This is typically required when you put down less than 20% on the property. PMI protects lenders in case borrowers do not make their payments.
When it comes to finding the best mortgage rates for your real estate investment, understanding all the fees associated with a loan can help you save money in the long run. Make sure to ask your lender or broker about any additional costs before signing anything.
10. Only Deal with Reputable Mortgage Brokers
Needless to say, you should only work with reputable mortgage brokers for your real estate investment needs. This is especially important when you are dealing with large sums of money and complex contracts.
So, during your “best mortgage brokers near me” online search, make sure to gather as much information as possible about the company you are considering. Visit their website to learn about their history and their business.
You should also read mortgage broker reviews. Doing this will give you an idea of what experience you will have working with them.
Once you think you have found a reliable mortgage broker, do not forget to ask questions—the more informed you are, the better decisions you can make.
Why Also Work with a Real Estate Agent
Real estate agents can do more than just help you find your dream home. They can also be a valuable resource for finding the best mortgage products for your real estate investment.
Agents have an in-depth understanding of the market and can provide insight into what lenders are offering when it comes to mortgages. Plus, they know which lenders are reputable and who might offer better deals on loans than their competitors.
In addition, having a real estate agent by your side makes the process of comparing mortgage rates easier as they can provide you with details quickly and efficiently.
It goes without saying that the real estate agent benefits you can get can also be invaluable when it comes to finding the best home financing options for your needs!
Make the Right Choice for Your Real Estate Investment!
Finding the best mortgage rates and loan terms for your real estate investment can be overwhelming, but with a little bit of research and patience, you are sure to find one that works well for you.
Be sure to compare financing options and take into account all fees associated with getting a loan before making any decisions.
Plus, do not forget to only use trusted mortgage brokers who can assist you throughout the process. In the end, they will help make sure you get the best mortgage products possible.
So, get out there and start exploring your options! You never know what amazing deals await you on your house-hunting journey.