10 Strategies for First-Time Buyers to Improve their Mortgage Rates

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By Richard

Looking to improve your mortgage rates as a first-time buyer? We’ve gathered ten strategies from industry professionals like business owners, brokers, and CEOs. From collaborating with brokers to requesting a pay raise at work, discover the best tactics to secure a favorable mortgage rate.

  • Collaborate with Brokers
  • Focus on Credit and Compare Offers
  • Practice Saving and Reducing Debt
  • Use Extra Cash
  • Make a Higher Down Payment
  • Consider Assumable Mortgages
  • Prioritize Reducing Outstanding Debt
  • Obtain Pre-Approval Before House Hunting
  • Employ Comparison Shopping Strategy
  • Request a Pay Raise at Work

Collaborate with Brokers 

Collaborate with a wholesale mortgage broker, such as TMT Mortgage LLC, who has access to multiple lenders and banks and can shop the rates, products, and terms on your behalf.

Also, consider government programs, such as FHA, which often offer competitive rates and lower down payments.

Finally, improve your credit scores, as lenders heavily consider them in their interest rate calculations. Ensure bill payments are made in a timely manner and reduce debt to enhance your credit profile, ultimately paving the way for more favorable mortgage interest rates.

Paul Mathew, Owner and Broker, TMT Mortgage LLC

Focus on Credit and Compare Offers

A first-time homebuyer can get better mortgage rates by focusing on improving their credit score. Lenders tend to offer lower interest rates to people with good credit histories.

Therefore, it’s beneficial to pay bills on time, reduce any outstanding debts, and maintain a strong credit profile. Shopping around and comparing offers from different lenders is also recommended to ensure the best deal is obtained.

For those unsure of where to start, a mortgage broker can provide helpful guidance based on the specific situation.

Alex Shekhtman, CEO and Founder, LBC Mortgage

Practice Saving and Reducing Debt

First-time home buyers should plan to save money before buying. Live within a small budget for one year, practicing paying yourself a mortgage by taking a portion of your wages and placing them in your savings account, a shoe box, or a safe, and do not touch the money for a full year.

Then, use that money after a year to pay down your debt. The next six months, practice building your credit by opening small credit cards and using lines of credit. Prepare all your documents such as employment history, tax information, bank statements, rental history, etc. Then, get fully approved by a lender and apply for government programs to assist with closing costs. Buy your first home as an investment, not as the long-term dream home.

Lynden Price, Realtor, Sequoia Real Estate

Use Extra Cash

The method to reduce your interest rates in the most efficient manner varies from person to person.

If you have extra cash, use it to buy down your rate.

If you’re cash-strapped, the best approach would be to be smart and not rush into a purchase. Take your time to develop a strategy. This strategy should involve saving more money by creating a responsible budget and building your credit score.

When you have cash and a solid credit score, you will, in turn, reduce your debt-to-income ratio (DTI). All of these factors are essential in lowering your interest rate.

Chris Cusimano, Homes by Cusi Team Lead, Keller Williams Realty Boca Raton

Make a Higher Down Payment

One effective strategy for first-time homebuyers to secure improved mortgage rates is to make a higher down payment. When you contribute a substantial portion of the purchase price upfront, it decreases the perceived risk for lenders. This reduced risk leads to a lower loan-to-value ratio (LTV), which, in turn, makes you a more attractive prospect for lenders. By making a significant down payment, you’re essentially requesting a smaller loan amount from the lender, which can result in lower interest rates.

First-time homebuyers can take advantage of government programs designed to assist home buyers with down payments. These programs can provide financial support to help you afford a larger initial down payment, further improving your chances of securing favorable mortgage rates and terms.

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Saravanan T S, Marketing Lead, THE CANADIAN HOME REALTY INC

Consider Assumable Mortgages 

Some mortgages are assumable, meaning the new owner can assume the existing mortgage, which, hopefully, was obtained at a low rate.

If a home has been on the market, there may be an incentive to offer seller-paid points to get the home sold. These points can help reduce the interest rate.

Maintaining impeccable credit is crucial. Bills should be put on auto-pay to avoid missing a payment. Interest rates fluctuate, so be prepared to refinance if rates decrease.

Forming a relationship with a reputable mortgage broker is beneficial. They can keep you updated on rates and assist with refinancing. A competent mortgage broker can also provide creative financing solutions. The mortgage landscape is always changing.

Maureen Richardson, Financial Planner, Tomren Wealth Management

Prioritize Reducing Outstanding Debt

For better mortgage rates, first-time buyers must prioritize reducing their outstanding debt. This means actively working to pay down existing loans and credit card balances.

By lowering the amount you owe, especially on high-interest debts like credit cards, you can improve your credit-utilization ratio and overall creditworthiness. This can lead to better mortgage rates because lenders see you as less of a risk. Ultimately, it’s a smart financial move that can save you money in the long run and make you a more attractive borrower.

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Mike Roberts, Co-Founder, City Creek Mortgage

Obtain Pre-Approval Before House Hunting

One strategic step that first-time homebuyers can take to improve their mortgage rates is obtaining pre-approval before they kick-start the house-hunting process. This essential step not only conveys to sellers that you are a dedicated and credible buyer, but also has the potential to significantly bolster your bargaining power when it comes to negotiating favorable terms and rates.

Pre-approval indicates that a lender has meticulously assessed your financial situation, creditworthiness, and ability to secure a mortgage. Equipped with this pre-approval letter, you enter the real estate market with a distinct advantage, as sellers are more inclined to view your offers favorably, reassured by the fact that your financing is well-organized.

Securing a pre-approved mortgage can open doors to more competitive interest rates and terms, which could translate into long-term savings. This strategic move simplifies home-buying and positions you firmly to make your dream home a reality.

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Bill Lyons, CEO, Griffin Funding

Employ Comparison Shopping Strategy

To secure the most favorable mortgage rates, first-time homebuyers can greatly benefit from employing the strategy of comparison shopping. By shopping around and comparing different lenders’ offers, borrowers can find not only the lowest interest rate but also a lender who provides the most favorable terms such as payment structure, fees charged, escrow account setup requirements, and other factors.

When comparison shopping for a mortgage, it is important to keep in mind that the lowest rate may not always be the best deal. Borrowers should compare each lender’s proposal carefully and make sure they understand the terms that come with different rates before making a decision.

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Keith Sant, Founder and CEO, Sell My House Company

Request a Pay Raise at Work

Yes, saving for a bigger deposit or down payment is important, but you can’t do that overnight. It takes time. However, if you’ve been at your job for a while and have had good results, you are perfectly entitled to ask about a pay raise.

With just a slightly higher salary, your debt-to-income ratio will be lower for the mortgage you’re looking at, so the rates available to you could come down overnight. In a nutshell, if you’re earning more in comparison to the value of your mortgage, it’s less risky for a bank to lend to you. The result? Lower interest rates.

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Sam Hodgson, Digital Content Manager, Clifton Private Finance

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