How to Get a Mortgage Loan (with the Lowest Possible Rate)

Nikhita Mahtani
Photo credit: Sam Edwards - Getty Images
Photo credit: Sam Edwards - Getty Images

From House Beautiful

You’ve found the house of your dreams. Now what? “Getting a mortgage is one of the most crucial steps for prospective homebuyers,” says financial expert Priya Malani, CEO and founder of Stash Wealth (unless you've got enough cash to buy a house without one). The issue is, it isn’t as straightforward as one might think: There are a myriad of ways you’ll have to prove your worthiness for said loan to the lender—think income, credit score, and other assets. You’ll also want to make sure that you’re saving money on interest, and not paying too much of an overhead cost as time goes by.

Below, check out expert tips to make sure you qualify for the mortgage you’ve been waiting for, without shelling out more money than necessary.

Picking the Best Lender

“Having the right professional on your side to help you navigate the process will make a significant difference and could save you money,” says Hilani Kerr, Consumer Lending Executive at Bank of America.

  • Doing your research by shopping around for mortgage rates is the best way to see considerable savings. If you like a lender but their offer is missing something you saw in another offer, communicate this. In most cases, lenders want your business and will be willing to work with you.

  • Find a responsible lender: When you choose a lender, pick someone you feel good about working with. They should listen to you and put your needs first, and they should be able to explain your home loan options in plain terms.

  • Ask what type of loans are available to you based on your credit score, income, history with the bank, and type of home you purchase.

  • Work with your lender to establish parameters—aka, how much you want to spend versus how much you have to spend. There’s a good chance you will qualify for a larger loan than you can actually afford to carry. Just because you qualified for a large loan, that doesn’t necessarily mean you should commit to that much.

  • Explore relationship credits: Some lenders have relationships with banks and are incentivized by creating a deeper relationship with their bank, whether that’s by opening a new account or working with a lender associated with a money-centered bank. Some lenders can use this relationship as leverage to drive the cost of your loan down.

Getting Approval

Although you’ve probably seen the terms “pre-approval” and “pre-qualification” being tossed around pretty loosely, it’s important to note that they are not the same thing. “Pre-qualification is a relatively easier process than pre-approval because it’s completed without verified information,” says Malani. A lender can estimate the mortgage value you’ll be able to afford based on information you provide like income, employment, and debt.

“Pre-approval, on the other hand, is a little more intensive because the information you provide to a potential lender has to be proven,” explains Malani. “We’re talking pay stubs, W2s, screenshots of your savings account, and explanations for any large deposits and where they came from.”

“Holding all other things equal, if two offers are submitted on a home and one buyer is pre-qualified but the other is pre-approved, the seller is more likely to accept the offer with the pre-approved loan,” adds Malani. “Pre-approval requires a little more leg work on the front end but in the long run, it gives your offer more backbone than those who are coming in with only a pre-qualification.”

Photo credit: Hearst Owned
Photo credit: Hearst Owned

Therefore, in order to be able to qualify for a mortgage, you need to work on strengthening your credit by checking your credit reports and making sure you pay all your debts on time and in full. Provide proof of employment and assets, including all checking and savings accounts. You should also make sure the house is within your budget—there are several online mortgage calculators that can help with this. “Start to qualify as early as possible—even a year before purchase—because the right lender will coach you on what you need to get to your goal if you’re not 100 percent ready, such as you don’t have enough for a down payment, have blemishes on your credit report, or have a high debt to pay down,” adds Malani.

Boosting Your Negotiating Power

If you worry you’ll be stuck with a terrible rate, don’t despair: There are several steps you can take to garner a more attractive mortgage rate when negotiating. Taking some time to strengthen your case—even if that means literally saving up for a few more years—will be well worth it when it comes to dissuasions with a lender.

  • Put down a bigger down payment: Whether you’re getting additional down payment assistance or earning a larger income, putting down a larger down payment could lower your mortgage rate.

  • Improve your credit: A better credit score often means a better mortgage rate. When combined with a larger down payment, you’ll have a better chance at a more attractive rate. Pay down your credit cards ASAP.

  • Compare lenders: Researching lenders allows you to compare solutions, such as down payment assistance and mortgage fees you can waive at closing, and you can always use the information you’ve gathered to pull leverage when speaking to your first-choice lender.

Ready to take the next step? Here are the most popular home-buying loans, and five hidden costs of home-buying.

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