After riding a swift updraft earlier this year, mortgage rates have fallen to about 4.1 percent for a 30-year fixed loan.
But there’s a good chance they’ll resume their upward path. That’s one of a number of things borrowers need to know now to get the best loan.
“For planning purposes, if I were thinking of getting into the market next spring, I’d be working with numbers in the 5 percent range,” said Keith Gumbinger, vice president of HSH.com, a Riverdale, N.J.-based publisher of mortgage information.
So does that mean buyers should speed up their timetables and jump into the market before rates start to rise again?
Not necessarily. For one thing, analysts aren’t predicting a huge increase.
And the mortgage rate is “only one part of the [home-buying] transaction,” Mr. Gumbinger said.
And even if rates start to rise, they are likely to remain affordable, by historic standards.
“Mortgage rates are not, and won’t be for some time, an impediment to well-qualified borrowers,” said Greg McBride, an analyst with Bankrate.com. “If the difference between a 4.5 percent and 5 percent rate on your mortgage is the difference between being able to afford a home or not, you’re stretching yourself too far.”
Given the changing mortgage landscape, here are things borrowers can do to get the best deal:
● Do your homework: The first step is to check your credit report with the three credit-reporting agencies.
You can do it for free at AnnualCreditReport.com. If there are any errors, correct them. Then do what you can to improve your credit rating by paying down your debt.
Avoid borrowing to buy a car or other big-ticket item in the months before you apply for a mortgage — and, for that matter, up to the date you finally close on your new home.
You can check your credit score at MyFico.com for $19.95. Anyone with scores below 620 will find it very difficult to qualify for a mortgage; borrowers with scores over 740 qualify for the best rates. It’s a good idea to try to improve your score in the months before you apply for a mortgage, because even a 20-point improvement can make a difference in the rate you can get, according to David Stein, chief operating officer of Residential Home Funding in Parsippany, N.J.
● Get preapproved: Even before you start looking for a house, you should get preapproved for a mortgage. This will make you a stronger buyer, because sellers will know you have the financing in place to move forward.
● Choose between rates: The standard loan offers a fixed interest rate for 30 years. Adjustable-rate mortgages offer a fixed rate for, typically, the first five or seven years; after that, the rates can rise every year. In exchange for accepting the risk that interest rates will rise, borrowers get a lower initial rate on ARMs. According to the Mortgage Bankers Association, ARMs make up about 7 percent of the current market.
But ARMs make sense only for people who know for sure that they’re going to be in the house for a limited time.
● Decide length of loan: Fifteen-year loans are more popular with refinancing homeowners than they are with first-time home buyers because many buyers can’t afford the higher monthly payments. The reward is that over time, you’ll pay much less in interest by shortening the life of the loan. And 15-year mortgages come with lower rates.
● Lock in your rate: Once you’ve found a good rate, consider locking it in, which you can usually do for no cost or for a fee that is refunded at closing. It’s not worth betting that rates will fall before you close on the house.
“I rarely tell folks to try to time the bottom of the market,” Mr. Gumbinger said. “Mortgage rates almost always rise much more quickly than they fall.”
“Don’t try to guess the way rates are moving,” Mr. McBride agreed. “I’m not a fan of people rolling the dice for something as significant as what their mortgage payment is.”