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If you’re looking to become a homeowner, now is prime time.
The average 30-year fixed mortgage rate fell to its lowest level in almost a year last week, offering relief to those who have been waiting for a better deal.
Here’s how you can improve your chances of getting approved for a mortgage at a favorable rate.
The Time Is Now
The dam may finally be breaking on high mortgage rates following a dip last Friday that brought rates back to their lowest levels in nearly a year, according to Mortgage News Daily.
The dip followed the Bureau of Labor Statistics’ August Employment Situation Summary, which showed just 22,000 new jobs in nonfarm sectors. The unemployment rate also rose from 4.2% to 4.3%.
These numbers sparked a reaction in the bond market. Following the release of the employment report, the average rate on the 30-year fixed mortgage saw its biggest one-day drop in more than a year on Friday, September 5, falling to around 6.29%.
Currently, the average mortgage rate remains steady at that number.
Lock In, Interest Rates Might Be Next
Lower mortgage rates come as the Federal Reserve prepares to meet on September 17, where the central bank may decide to cut the federal funds rate.
That means now may be as good a time as any to gun for a mortgage. If you have your eyes set on a property, it’s time to work on boosting your credit score, if it’s not already at a prime level.
Your creditworthiness will determine what mortgage rate you’re eligible for. Higher credit scores typically qualify borrowers for better rates. Credit scores range from 300 to 850, and while anything above 670 is generally considered “good,” lenders reserve the most optimal rates for borrowers with “exceptional” scores above 800.
To improve your credit, aim to keep revolving debt below 30% of your available credit limit. Always pay your bills on time each month and avoid closing older credit accounts, as this can negatively impact your credit history.
As you work to improve your score, consider using credit monitoring services. These tools help you catch reporting errors and protect against identity theft.
Another way to secure a better mortgage rate is by offering a larger down payment. According to Synchrony, a larger down payment signals to lenders that you’re a lower-risk borrower, opening the table for more negotiation.
A 20% down payment is a strong benchmark that can allow you to negotiate for a lower interest rate, potentially saving you thousands of dollars over the loan term. A lower rate also reduces your monthly payments, providing more room in your budget.
To save for a larger down payment, consider using a high-yield savings account. These accounts earn higher interest rates than traditional savings accounts, helping you reach your down payment goal faster. According to the FDIC, the average savings account rate in August was 0.39%, while HYSAs can offer returns between 3% and 5%.
When you’re ready to apply for a mortgage, shop around. Each mortgage lender offers different rates, loan options, accessibility and customer service. Each has its own threshold on the minimum credit score allowed for an application, and some offer lower rates than the national average.
New American Funding, for instance, offers fast preapproval times, hands-on customer support for borrowers with unique financial situations, interest rates lower than the national average and various loan options with customizable terms.
Bottom Line
If you’re looking to buy a home, now is the time to up the ante. Work on bringing up your credit score and save toward a larger down payment to qualify for the most competitive mortgage rates. Comparing lenders can help you find the best deals and save both time and money in the long run.