As the coronavirus pushed the U.S. into a recession this spring, mortgage rates started a swift decline into all-new territory.
Average rates on 30-year fixed-rate mortgages slid below 3% for the first time ever in July, and homebuyers are heading out to snag a deal. The number of purchase applications to buy homes was up 19% between late July and the same time in 2019.
If you’ve been thinking about homeownership, now’s the time to catch a dip in the market. Use these tricks to get the best deal on a mortgage during the pandemic.
1. Improve your credit score
Mortgage rates are partly driven by the market, but banks also base your rate on your credit history and other factors. During the pandemic, some mortgage lenders have increased their credit score requirements to cut down risk. The average credit score for all mortgage applicants was 750 in May, up from 728 at the same time in 2019.
Improving your score can help you qualify for a mortgage and get a good interest rate — and even a small boost will help. According to FICO, bumping your credit score from 699 to 700 could drop your APR from 2.938% to 2.761%, shaving $28 off the monthly payment on a 30-year fixed-rate mortgage.
For help raising your score, check out “7 Ways to Boost Your Credit Score Fast.”
2. Save up for a large down payment
The median down payment for first-time homebuyers in 2019 was 6%. And, although down payments of 5% to 15% are more common, some lenders even may accept as little as 3% down on a conventional mortgage.
Making a larger down payment, however, helps get you a better interest rate. That’s because the lender takes on less risk.
It also shrinks the size of your loan, which lowers your monthly payment.
If you can swing it, a 20% down payment can help you save on these costs. Plus, you won’t have to buy costly private mortgage insurance.
3. Shop for the best mortgage rate
Getting quotes from several lenders puts you in a better bargaining position.
Getting at least one extra rate quote can save you $1,500 over the life of the loan. And yet, about half of homebuyers skip this step, according to research from Freddie Mac.
Ask at least three lenders to estimate your mortgage rate and closing costs. (Hint: Freddie Mac says you could save even more by getting five quotes, but it takes more legwork.)
In early August, Mortgage Daily News reported the average interest rate on a 30-year fixed-rate mortgage at 2.81%.
4. Find a reputable lender
Mortgage lenders have been busy lately.
The pandemic, a high unemployment rate and turbocharged mortgage demand have created a huge need for customer support, according to data analytics company J.D. Power.
It’s more important than ever to find a lender that offers helpful tools (like a good website or app), strong customer service and good communication. Look for these when you compare lenders.
Plus, the type of lender you go with might affect the rate you get. In a side-by-side comparison, credit unions typically offer slightly lower interest rates for mortgages, compared with banks. They also tend to have better customer service.
5. Shop for the lowest closing costs
Closing costs are fees you pay the mortgage lender and third parties to handle the loan transaction. These usually include title insurance and appraisal fees, among others.
Closing costs are a hit to your wallet. Average closing costs for a single-family home in 2019 ran $5,749 with taxes, and $3,339 without taxes, according to mortgage data firm ClosingCorp.
These fees fluctuate by lender. You can shop around to lower your costs in some cases.
6. Ask lenders to match offers
Get ready to negotiate.
Start by taking the estimates you received, comparing closing costs and interest rates, and pinpointing the best deal.
Contact the other lenders and ask them to match the lowest mortgage rate and closing costs. Some may ask for a copy of the estimate, so be prepared to hand it over. Your preferred lender may shave a little off its interest rate and closing costs.
Getting the best deal on a mortgage comes down to boosting your credit score, saving for a down payment and shopping around to find the best lender and rate. You’ll need to put in some time and effort, but the savings could be worth it.