By Jim Cramer
I was punching the calculator on manybanking.com this weekend, and noticed that the rates for 30-year mortgages were still at ridiculously low levels: 5.19% when I checked. It got me thinking. Is that the rate you can really get? Can you get a lower one? Or, do you need a credit rating higher than a high school valedictorian’s SAT score to get the real goods?
Like a lot of Americans, I’m itching to get into the real estate market and knowing how to get the best deal could induce me to actually pull the trigger.
So I did some research and found that getting the lowest mortgage rate is a mixture of the obvious and the not so obvious. It’s a smorgasbord of human characteristics: part common sense, part luck, part having the patience of a saint, and part having the tenacity of a Pittsburgh Steeler linebacker on third-and-ten.
That goes for whether you’re buying a home or refinancing your mortgage. In Part I of this two-part series on getting a low mortgage rate, we’ll take a look at what turned up in my long-weekend sleuthing. I’ll have more tips in Part II.
Straighten out your credit score. You can get a decent mortgage rate with a decent credit score but you can get a great mortgage rate with a great credit score. Studies show that people with the best credit scores—roughly 720 and above—can get a mortgage rate three-quarters of a point lower than those with scores in the mid-600’s. To hit the sweet spot with your credit score, keep your loan balances low. I mentioned recently that credit agencies like to see credit card balances, for example, under 30 to 35% of the borrower's total available credit. So if your credit card balance is $5,000, keep your balance under $1,500. Another tip: Don’t fill out a lot of mortgage loan applications. Each one triggers a credit check, and too many credit checks crimp your credit score. (The theory is that credit report agencies figure you’re taking out too many loans, and are thus a higher credit risk.) Bonus tip: Get a free copy of your credit report at AnnualCreditReport.com.
Shop around. Homebuyers, especially first-time homebuyers, are apt to take the first mortgage deal they can get (probably because they found their “dream house” and don’t want to wait to find a better deal). However, shopping around can make all the difference in the world. I jumped over to sbup, MainStreet's partner site, and clicked on “30-year fixed mortgage,” typed in my zip code and came up with about half a dozen lenders in my area that offered interest rates at or below the 5.19% level that I mentioned above. It was easy, accurate, and took me all of 30 seconds.
Lock in a favorable rate. You only have about 48 hours to find a good mortgage rate, contract the lender and lock in that rate. The lender will “pre-qualify” you, meaning they’ll rubber-stamp an interest rate approval, but won’t lend you the money until you’ve been more thoroughly vetted (or “pre-approved"). Make sure you lock in your interest rate on paper—demand that of your lender. Ask that the rate is good for a fixed time period, say 30 to 60 days. That will give you enough time to find a great house. Better yet, ask your lender for a “float down” agreement, meaning that if your locked-in rate falls during that 30 or 60 days, you’ll get the lower rate.
Next, I’ll have some more tips on cutting the best mortgage rate deal. In the meantime, feel free to send in some of your best ideas.
—Brian O’Connell contributed to this article.
For the best rates on CDs, mortgages, savings, credit cards and more, enter your ZIP code at manybanking.com.