There’s a lot involved in getting an excellent mortgage interest rate, although some people might try to convince you that comparison shopping is the only step you’ll have to take. That’s just not true.
In fact, your credit score is going to play a much bigger factor in whether you get a low or high-interest rate on your mortgage.
So you can expect the mortgage industry to examine a wide range of factors to determine if you qualify for a particular mortgage, including your credit score, income, and debt-to-income ratio. And you can bet that this examination will also help determine the interest rate you end up paying. Regarding reverse mortgages, it’s essential to consider the pros and cons.
On the positive side, reverse mortgages allow homeowners aged 62 and older to access the equity in their homes without making monthly payments. This can provide financial flexibility and supplement retirement income. However, there are also potential drawbacks to consider. These may include high closing costs, reduction in home equity over time, and the need to repay the loan when the borrower moves out or passes away. Understanding the pros and cons of reverse mortgages is crucial in making an informed decision about whether it is the right financial option for you.
And remember, when shopping for mortgages online, all major lenders will have different ways to apply.
1. Your Credit Score
When lenders look over your application, one of the main criteria they will pay a great deal of attention to is your credit score, also known as your FICO score.
As you know, the higher the credit score you have, the lower your interest rate is going to be, so it’s in your best interest to work on raising your credit score ahead of time before applying for mortgage loans.
In all honesty, if you intend to qualify for the best available interest rate, you’ll need a credit score of 760 or better.
On the opposite side of the coin, you’ll still qualify for a mortgage if your credit score is 620 on the low end, but you’ll have to pay a much higher interest rate than somebody with a 760 score or better.
2. Employment/Income Stability
As you can imagine, current mortgage lenders want somebody that can prove that they have steady employment in order to qualify for a loan. As a matter of fact, most mortgage lenders are going to look for candidates with a two-year steady employment history.
And if you have a history of long stretches of unemployment, you’re really not going to qualify for a mortgage loan.
On another note, if you have a pattern that shows your earnings are declining, this is also going to look very negative when you attempt to get a mortgage for your new home.
If you’re self-employed, lenders will typically ask you to supply your previous two years’ tax returns. They need this to prove your income-earning history.
3. Your Down Payment
Generally speaking, to purchase a new home, you will typically be required to pay a 20% down payment in the current market. This is true, at least if you want to get the best mortgage interest rate.
Remember, lenders base mortgage interest rates on their risk factors. If you’re willing to put down 20% on your new home, you will become a much smaller risk to the lender, which will help you qualify for a higher interest rate.
So, it certainly makes sense to put down as big a down payment as you can.
If you can go even higher than the expected 20% to qualify for a lower interest rate, then by all means, you should do so because it will help you have a better chance at getting an even lower rate.
On another note, if you put down less than 20% on your home, you may be required to pay for private mortgage insurance, also known as PMI, so keep that in mind because it’s an additional expense.
Conclusion
Please use these three tips to get the best possible mortgage at the lowest interest rate. In all honesty, if you intend to qualify for the best available interest rate, you’ll need a credit score of 760 or better.
