If buying a home is a goal of yours, then you may be eager to put a mortgage in place before the end of the year. The good news is that the Federal Reserve recently lowered its benchmark interest rate for a second time this year. That could lead to lower mortgage rates in the coming weeks.
It’s important to shop around for a mortgage rather than accept the first offer you get. You never know when one lender’s offer will be more competitive than another’s, either in terms of your rate or your closing costs, which are the fees lenders charge to put a mortgage in place. It’s essential to do your research — and you can start by checking out this list of the best mortgage lenders.
But that’s not the only legwork you should do if you’re signing a mortgage soon. There’s another step you need to take if you want to lock in the best mortgage rate possible.
Don’t let your credit report’s contents remain a mystery
Your credit report is a summary of your borrowing history, and you should look at when you’re applying for a large loan like a mortgage. The reason? If your credit report contains an error that reflects poorly on you, it could make it harder to qualify for a mortgage, or you might get stuck with a higher interest rate.
Say your credit report lists one of your loans as delinquent. If you know you’ve made every payment on time, correcting that error may be pretty easy. It could be a simple matter of getting a letter from your lender confirming you’re current on your loan, and then submitting it to the credit bureau whose report contained the error.
But if you don’t take that step, your mortgage rate could end up higher than what it should be. And when you’re talking about potentially borrowing a few hundred thousand dollars, a higher rate could make a big difference.
Say you’re buying a $250,000 home and are taking out a 30-year, $200,000 mortgage. If your credit report contains an error that leaves you with a 7% mortgage rate, your monthly principal and interest payments on that loan will be $1,330.
But without that error, you may be looking at a higher credit score and a lower interest rate on your mortgage — say, 6.7%. In that case, your monthly principal and interest payments drop to $1,290. That’s a savings of almost $500 per year. And over 30 years, you’re saving about $14,400 on interest with that lower rate.
An important step to take
Checking your credit report could set you up for a lower interest rate on your mortgage. It’s a step worth taking if you think you’ll be getting a home loan soon.
But remember to pull a copy of your credit report from each of the three reporting bureaus — Experian, Equifax, and TransUnion. It’s not a given that they’ll all contain the same information, so it’s important to check each one carefully.
The good news is that you’re entitled to a free copy of your credit report from each bureau every week, so this step shouldn’t cost you a dime. It could, however, result in big savings.
