2022 was quite a wild ride for mortgage rates. We started off the year at an average of 3.22% for a 30-year fixed-rate mortgage. By the end of October, rates peaked at 7.08%. After dipping slightly for a couple of weeks, they hit 7.08% again in early November. But since then, rates began to decline. As of the writing of this post, Freddie Mac puts the average at 6.27%. The higher your interest rate, the higher your mortgage payment. What should you do to get the best mortgage rate for your next home purchase? Follow these simple steps.

How to Get The Best Mortgage Rate

Whip That Credit Into Shape

Higher credit scores translate into lower interest rates. Start by visiting AnnualCreditReport.com for a free copy of your credit report. Look for any errors. Each reporting agency (Equifax, TransUnion, and Experian) offers a link to report these errors with its own rules for reporting. So, if you find errors on your credit report, visit the appropriate agency’s website and follow their requirements. Be prepared to provide proof of the error as well.

Pay Down Debt

Part of whipping your credit into shape includes paying down debt. The quickest way to increase your credit score is to pay down your revolving credit accounts. Borrowers should use no more than 30% of the limit on these. So, if your credit card has a $10,000 limit, your balance should not be more than $3000. If your balances rise above 30% of their limits, pay those down to 30% or below as soon as possible. Additionally, lenders like to see a lower debt-to-income ratio.

Increase Your Down Payment

Another way to lower your mortgage rate is with a higher down payment. Financial experts recommend 20% down whenever possible. This helps you qualify for better rates. It also prevents you from paying PMI, which lowers your monthly payment as well. However, if 20% down is not possible, that is OK. There are plenty of loan programs available that allow you to put far less down.

Buy Mortgage Points

Another way to lower than interest rate is to pay for points. They typically cost 1% of the mortgage loan amount for a 0.25% reduction in interest rate. For example, you borrow $750,000 for your Westfield area home. You qualify for 6.3% interest. To lower that to 6.05%, you need to come up with $7500. That is in addition to your down payment and closing costs. That saves you approximately $120 per month (over $1400 per year). This may be a motivating factor to pay down your points or you may choose to utilize that money in some other way.

Shop Around for Lenders and Loans

Do you always settle for the first car, first TV, first home, or first REALTOR® that you see? No. Most people shop around for these. You need to do the same with your lender and your loan. Compare lenders first. Find the one that offers the best rates with the best reputation. Then, talk to them about loan options. FHA? VA? Conventional? 30-year? 15-year? Fixed-rate? Adjustable-rate? Ask your lender about the pros and cons of each before making a final decision.

Scott Gleason, CRS at Coldwell Banker Realty – East, NJ Luxury Homes