Did you apply for a mortgage, only to be offered a rate that's a lot higher than what you expected? If you don't want to pay thousands more over the life of your loan, it's a good idea to make a few changes that will result in you being offered a better rate. Here are four approaches to try:
Apply at a different bank.
If you're in a hurry to buy and can't afford to wait a few months, try just applying for a mortgage at a different bank to see what rate they offer you. Different banks weight various criteria differently when it comes to mortgage loans. For instance, one bank may rely more heavily on your income to determine the rate they will offer you, while another one may look more carefully at your credit history.
Try applying to a different type of bank from the one you already applied to. For instance, if you applied to a small regional bank, try applying to a larger nationwide bank this time around.
Increase Your Income
If you have a few months until you really need to buy a home, you may want to work on increasing your income in the meantime. The higher your income, the more assured the bank will be that you'll pay them back. So, with a higher income, you may be offered a better rate. Take on a second part-time job or take on some extra hours at your current job. If you have a spouse who does not work, having them return to work--even temporarily--may earn you a much better rate.
Pay Off Some Debts
Another thing banks consider when you apply for a mortgage is your debt-to-income ratio. So, if you have a lot of debt, you may not get as good of a rate as someone who has less debt. Focus on paying off some of your debt, and then re-apply for a mortgage; you'll probably get a better rate. Start by paying off your debt with the highest interest rate since this will save you the most money in the long term.
Save For a Larger Down Payment
If you save up more money to put towards the down payment, you won't have to borrow as much from the bank. They may be more confident in your ability to pay off the smaller loan, and may thus offer you lower mortgage rates. If you can save even an extra $5,000 towards your down payment and then re-apply, do so.