Getting the Best Mortgage Rate

With 30-year mortgage rates moving upward from the recent historic lows, many people are wondering if they can still get a good deal on a mortgage. The answer is definitely yes - provided you keep a few things in mind.

The first thing is to remember that the current 30-year rates of 5.5 percent to 6 percent are still screamingly good deals compared to what mortgage rates have been historically. For one thing, they're still better than or just as good as what you could get for the past eight years. Before that, rates remained above 7 percent for 30 years, and topped nine percent and even double digits in more than half of those.

Start with your credit score

So historically, you're pretty much going to get a good rate no matter what you do. But of course, you probably don't care about history as much as you do about getting the best rate that's available now. There are a number of things you can do to ensure that you get the best mortgage rate you can, whether buying a home or refinancing. The first thing is to find out your credit score, since that's the biggest factor in determining what sort of rate you can qualify for. Anything above 720 should enable you to get a lender's best rates; below 650, you're going to be paying considerably more.

By law, you're entitled to a free copy of your credit report once a year from each of the three major credit reporting companies - Experian, Equifax, and TransUnion - who maintain a web site, www.annualreport.com, just for that purpose. You can also obtain copies by calling 877-322-8228. There are also a number of for-profit sites that charge for this same information, some of which advertise heavily - don't fall for them.

While you're at it, check your credit reports for any errors or omissions that might be dragging down your score. One of the reasons for doing this once a year is that it can take a while to get credit report errors corrected, which is time you don't have when you want to snap up that just-perfect house you've found or take advantage of a great refinance rate before it goes up.

Research lenders, rates and terms

Once you have your credit score, it's time to do your homework. Call around to lenders and brokers in your area and see what kind of rates you can get for someone with your credit score and financial situation. Remember, just because the national average that week is 5.9 percent doesn't mean that's the rate you're going to get. Rates are local, and those in your area could be one- or two-tenths higher or lower than the national rate. Rates also fluctuate, sometimes as often as several times a day, and the national rate you see could be obsolete by the time you call. By checking with several lenders and brokers on the same day, you'll get a pretty good idea of what kind of deal they can offer you.

Also, find out what kinds of fees are required for the mortgage. While all mortgages have closing costs, these can include a variety of charges, under different names, that may or may not be mandatory. Make sure you're not paying for what you don't need. If you're going to need private mortgage insurance (PMI) for your mortgage, don't automatically accept the insurer your broker or lender suggests - you can often save by shopping around for one on your own.

You also might want to consider going to a mortgage broker, rather than a lender, particularly if you have flawed credit. Mortgage brokers know the various lenders who are out there and generally have a pretty good idea of who specializes in what types of situations and offers the best deals for a given set of circumstances. But if you have the time and energy to research a dozen or so lenders in search of the best rate, by all means do so.

ARM a good option for short-term ownership

You might also consider different types of mortgages. Though the 30-year fixed rate mortgage is generally considered the cheapest, safest mortgage over the long-term, an adjustable rate mortgage might be a sensible option for you if you don't plan on staying in the house longer than five or seven years. Five and seven-year mortgages can be a half to three-quarters point cheaper than a 30-year fixed. Just be aware that if you end up being in the house longer than expected, you could up paying a significantly higher rate if you need to refinance several years down the road.

If you're looking to refinance a mortgage, you have a bit more flexibility than somehow who's looking to close on that perfect house right now. As mentioned above, rates can be highly volatile and may swing back down again in the coming months. If you want to take that chance, you can get your application and paperwork in order now, so you're ready to act as soon as rates go down again. Just be aware that rates can change several times a day, so you need to act fast - perhaps within hours or that great rate may be gone.