11/16/2022
Understanding the mortgage financing process can take time because of the small but many details that make a difference. If you already have a home loan or are thinking about buying a home through a bank, there's always a chance to get a better deal.
Improving the terms of a mortgage will depend on several factors, but here we'll explain the ways we know about.
It is clear that one of the most important investments we will make during our lives will be the purchase of a new or used home.
Since the average price of a home in the United States is high, most of us do not have the liquidity to pay in cash. This circumstance forces us to look for a mortgage loan to buy one.
- Interest: From 4.75% to 5.75%
- Max term: 30 años
- Interest: Consult
- Max term: 30 años
- Interest: First years fixed-rate and the rest adjustable: SOFR + margin
- Max term: 30 años
- Interest: SOFR + margin
- Max term: 30 años
- Interest: From 5.125%
- Max term: 30 años
Now, the crucial step is to compare mortgages to find out which one best fits your personal finances. The general recommendation is to enter into this type of agreement with a good disposition and knowing the extent of your monetary liquidity.
When it comes to a first negotiation, ways to improve mortgage terms are:
The FICO credit score.
This 3-digit score is what can help you get the best possible terms. Why? Because it indicates to the lender the level of risk you represent to repay or not the money you borrowed.
It is a standardized benchmark that shows your financial behavior and level of commitment during your credit history. FICO score is also a key indicator if you intend to refinance your mortgage to get a more profitable deal.
This means checking it periodically for errors in your file, paying your bills on time, eliminating unused accounts and credit cards, and reducing your debt-to-income ratio (DTI).
The down payment
The more money you can put down to reduce the amount of financing, the easier it will be to get a good rate and repay the mortgage loan. However, paying 20% or more on a conventional mortgage can be complicated.
Ideally, you should be able to put together a substantial amount before comparing options and deciding on a bank.
On the other hand, contributing this percentage exempts you from taking out Private Mortgage Insurance (PMI), which can be a considerable expense in the first few years.
A good down payment is also very helpful with government alternatives, like FHA loans, which, although they ask for a lower percentage, can give you much more favorable rates.
The linkage with the bank
When we talk about linkage, we refer to contracting of additional financial products with an entity, the use of credit cards or direct debit of income and expenses.
Your usual bank may not give you the best conditions on the market, so you may have to go elsewhere. Many banks are willing to improve the terms of a mortgage if you establish a long-term relationship with them.
Contracting a life insurance or taking out an investment instrument is not complicated and may give you more benefits in the long run.
As long as the requirements don't conflict with managing your personal finances, it's an idea to consider. Remember, you're looking for the best terms for your mortgage.
Discount points
The famous mortgage points are an option very similar to disbursing a little more money for the down payment. They are called discount points because you can reduce the interest rate by buying them.
In fact, the discount is 0.25% for each point, the value of which represents 1% of the total amount of the mortgage loan granted. This option can be a great help when you put a certain amount of money down and it does not give you the expected results.
Refinancing
Recommended for those who already have a mortgage, remortgaging or refinancing can be an appropriate solution if it makes financial sense. This means that it may work under certain circumstances and under others it may become an unnecessary hassle.
When considering this option, we suggest you do so in the following cases:
- You have a fixed-rate mortgage with less than 5 years left on it. In general, this stage of the loan's life is the most convenient to make this decision.
- In the event that your lender does not allow you to make additional payments or penalizes you for them. Since you are in a better financial position, it makes sense to terminate the contract early regardless of the cost of terminating the current agreement.
- When the value of your home has risen significantly. This could mean that the loan-to-value ratio is lower, which would give you access to lower rates. As with the previous situation, it's worth getting out at any cost because your long-term benefits will be greater.
Improving your mortgage terms is much easier when you know what to do. You can rely on Busconomico's experts and comparator to get you a great deal.
Español: Cómo mejorar las condiciones de tu hipoteca