How to Get the Lowest Mortgage Interest Rates

Over the last few years we have been experiencing an environment of extremely low interest rates. This level of interest rates has not been seen for at least 2 generations. How long they will remain at this level is hard to predict so if you are thinking of applying for a new mortgage or a refinance, now is the time.

It’s obvious that to be qualified for these low rates you definitely have to have the right combination of credit and financial history. But to qualify for these great rates there is much more you need to consider.

How’s Your Credit?

Mortgage lenders are being extremely careful who they give credit to today. You are going to need a high FICO score just to get started. Because of the current crisis we are going through lenders are not taking the same risks they used to take. They are scrutinizing every application carefully and turning down the shakey ones and charging a higher interest rate to the others.

Make sure you have a high credit score. The credit score scale runs from a low of 300 to the top of 850. FICO considers an excellent credit rating to be 720 or above. But a higher score wouldn’t hurt. Before you begin an application with any lender check your credit score. You can do this for free at Annualcreditreport.com. You get one free report from each of the 3 credit reporting agencies every year. So you could get one free report every 4 months for free and continually monitor through the year.

Do You Earn Enough?

Having the ability to pay the mortgage payment every month is important to the lender. Besides your great credit score having an adequate income to pay your bills and your mortgage shows you are a good risk. This also puts you in a position to get the best rate. Lenders want to see that your total monthly bills are not more than 40 percent of your total gross monthly income. These items include your car note, credit card payments, student loan payments, and property taxes among other things.

Remember that your monthly mortgage counts in this 40 percent number. So it would be helpful to reduce credit card obligations to stay below the 40 percent level. But this 40 percent level is not set in stone because it could be adjusted up if you make a higher income.

Stable Employment.

Today for many workers, stable employment is a thing of the past. People switch jobs or are transferred more than ever. Moving to a new company for an increase in income or starting a new job after a time of unemployment is a common occurrence today. Lenders like to see a stable employment history. Lenders penalize or deny applications for a short history on a job. Other sources of mortgages like the Federal Housing Authority(FHA) cater to low income applicants but you would not enjoy the lowest interest rates and may even pay a point or two higher.

These types of loans come with lower down payment rules and easier credit qualifying. This may be an alternative if you can’t show a long term employment history.

Have Some Money Saved.

Having an adequate amount of savings in the bank shows you are a responsible saver and financially mature. It’s funny that to borrow money the lenders like to see that you already have money. Your going to have to show this money with bank and money market statements. The lenders today are putting greater and greater restrictions on all applicants. The days of easy borrowing are gone.

The more money in savings that you have makes the lenders job of giving you an approval much easier. They want to see that if you should lose your job and income, that you would be able to carry on for at least six months.

Equity in Your Home is Important.

If you have a dog in the fight it makes the lenders smile. Lenders want to know that the borrower has something to lose in the process. Having at least 20 percent equity in the property lowers the risk to the lender and shows you’re a responsible partner in this property ownership plan. If you have at least 20 percent equity you will definitely have the lenders attention and be given the lowest interest rates.

Put yourself in the position of the lender. What type of deal sounds better? An application from someone who has no money in the bank, a sketchy work record, insufficient income, and a poor credit score. Or an applicant who has $20,000 in the bank, a two year record at a job, a good income, and a 750 FICO.

It’s a big financial decision to buy a home and apply for a mortgage. The press and our government have trivialized it so much that they have weakened the seriousness of the matter. Before taking such a big step it pays to prepare and when you do apply, shop around for the lowest interest rate. There are so many lenders in the market it pays to shop around.