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Sam Island for Money

As most of us know from experience, moving’s no easy feat. There are endless costs to deal with, lots of logistics to sort out, and of course, all the packing.

And if you’re moving across state lines? You have one more item to factor in: potentially higher mortgage rates.

Though average mortgage rates have hovered near record lows all summer (just 2.87% last week, according to Freddie Mac), the truth is there’s no national real estate market. And just like home prices vary from one place to the next, so do mortgage rates — and that could spell higher homebuying costs for some movers this fall.

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Why rates vary by state

According to Money’s daily survey of 8,000 lenders across the country, there are some pretty big discrepancies between states. Buyers in Colorado, for example, averaged a 3.854% rate on Friday. Over in Ohio? It was 3.413% — a difference of 0.441 percentage points.

Those points might seem small, but on a $200,000 mortgage, they mean $50 more per month and almost $18,000 in additional interest across a 30-year loan term.

The differences boil down to a few things: First, competition. “A state like California might have the lowest average rates because they have many lenders of all types who are competing against each other,” explains Ward Morrison, president of mortgage brokerage Motto Mortgage. “Increased competition usually lowers interest rates.”

Every market has different costs to operate, too — another factor that can impact rates. In Colorado and Georgia, for example, loan officers claim the highest salaries in the country, according to career site Indeed.com. This increases the lender’s overhead costs, which they might make up for with higher interest rates.

“Some markets and states are more expensive to operate in than others,” says Christopher Sailus, mortgage lending product manager at WaFd Bank. “There are salaries for processing, underwriting, servicing and support areas, plus the compensation of the loan originators, as well as office costs and licensing costs in each state. It adds up and does get boiled into the final rate and lender’s fees.”

There’s also risk to consider. In areas with higher loan default rates, struggling economies or rising job losses, lenders take on more risk, and borrowers might see higher interest rates as a result.

Stricter foreclosure laws can also translate into higher rates. In judicial foreclosure states — meaning foreclosures must go through the court system — it takes longer to process a foreclosure, and thus longer for a lender to recoup their losses when a homeowner falls behind. In New York, a judicial state, it takes about 445 days to process a foreclosure. In non-judicial Texas? It’s just 27.


Getting the best rate

Fortunately, borrowers don’t have to take high rates lying down. Taking the right steps can optimize your chances of getting a low rate — no matter where you move.

1. Focus on your credit first
Improving your credit score is one of the best things you can do for your mortgage rate.

“The higher your credit score is, the better rate you’ll get,” says John Pataky, chief consumer banking executive at TIAA Bank. “Paying bills on time and paying down your debts are two ways to help boost your score. A good rule of thumb is to keep credit card balances within 30% of the credit limit.”

You can also pull your credit report and alert the credit bureau of any errors you find. Contacting a local HUD counselor or credit counseling agency in your area is another smart move. Just make sure it’s a nonprofit organization if you go the latter route. (There are tons of credit repair scams out there!)

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2. Save for a bigger down payment

You don’t have to put down 20% to buy a house, but a bigger down payment can only help in the interest rate department. That’s because putting more money down reduces how much the lender has to loan you—as well as how much skin they have in the game.

And the less they have on the line? The better rate they’ll be willing to give you. “The larger the down payment, the less risky you become to a lender,” Pataky says.

Putting down a bigger down payment can also help you avoid paying for mortgage insurance. On a conventional loan, PMI costs between $30 and $70 per month, on average.

If you don’t think you can manage a big down payment — or a down payment at all, look into down payment assistance programs in the state you’re moving to. Many cities, counties, and state housing agencies offer grant and forgivable loans that can offset these costs. Down Payment Resource can also help match you with programs in your new area.

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3. Carefully consider your loan options

You should also think carefully about what loan product you choose. The 30-year loan isn’t right for everyone, and in most cases, it comes with higher interest rates than other options.

Case in point: Today’s average rate on a 30-year, fixed-rate loan is 2.87%. On a $250,000 house, that equates to $123,162 paid in interest by the end of the loan. Today’s 15-year loans, on the other hand, are averaging a rate of just 2.37%. On that same home purchase, you’d pay just $47,309 in interest — almost $76,000 less over time.

Keep in mind that a shorter loan term means a higher monthly payment. You may be saving more money long-term, but you need to be sure you can afford it even if your current financial situation changes. Depending on your plans, you might also think about an adjustable-rate mortgage.

“If this isn’t your forever home, consider an adjustable-rate mortgage instead of a conventional 30-year loan, as ARMs may offer a lower rate,” Morrison says. Adjustable-rate loans typically come with very low interest rates for the first few years of the loan—usually five, seven or 10 years. At that point, the rate can rise or fall, depending on the index it’s tied to. If you had this type of loan, you’d either want to sell the house or refinance to prevent a rate increase.

“Don’t hesitate to ask your lender to run various loan scenarios,” says Scott Lindner, national sales director for TD Bank Mortgage. “A knowledgeable lender will take the time to explain potential product options and why rates may vary.”


4. Think about buying discount points

Another way to lower your interest rate is to buy discount points — also called mortgage points. These cost 1% of your loan balance each and in exchange, reduce your rate by around 0.25%. It’s essentially a way of buying a lower interest rate.

“Paying money upfront to lower the rate can save you money,” Pataky says. “Just be sure you plan to stay in the house long enough so that you recoup that money and actually start realizing savings. If you expect that you won’t be in the place for the long haul, buying points may not be worth the expense.”

5. Shop around for your lender

Rates and fees vary by mortgage lender, so getting multiple quotes is critical if you want the lowest costs. According to Phil Shoemaker, president of originations at Home Point Financial, working with a local mortgage broker may be your best option here.

“They have their finger on the pulse of your respective market and can shop amongst many different lenders to find the best price, lender and loan product for you,” says Shoemaker. They’ll also know about any state or city-specific assistance programs you might be eligible for, he says.

When shopping around, make sure to consider several types of lenders, including banks, online lenders and credit unions—especially local ones. Many local institutions will offer perks and discounts if you’re willing to move your checking or savings accounts there.

6. Lock your rate—and make sure your lender can close in that timeframe.

Once you’ve compared your options, you’ll want to think about locking your rate to ensure it can’t increase before you close on your loan.

Be careful, though; for rate locks to work, you’ll need to be sure the lender can close on your loan within the lock period. Most lenders offer 30- to 60-day rate locks, but some can offer terms as long as 90 days.

Unfortunately, the pandemic and high demand has backed up lenders and spurred longer closing periods (the average loan took 47 days to close in July), so you’ll need to be cautious—especially with smaller lenders who don’t have as much staff or processing power.

“The lowest rate in the country is meaningless if your loan does not close on time and as promised,” says Omeed Salashoor, mortgage planning specialist at Homebridge Financial Services. “Rates and their commensurate fees fluctuate daily—if not hourly—so buyers should do their research on the lender and the individual loan officer, instead of just on rate.”

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