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Getting a Low Mortgage Rate

How to Get a Good Interest Rate on a Home Mortgage 

Are you planning to buy a new house, and want to save money along the way? Then here are some ways to get a good interest on your home mortgage, as well as minimize the amount of money you’ll shell out throughout the payment period.

Tip #1: Keep Your Job or Get Promoted

If you’ve been gainfully employed for the past two years, you’re in good shape. If you got promoted during that span, that’s even better. Your application may be disapproved if your employment record is spotty, or if you demonstrate declining earnings.

It’s even tougher when you’re self-employed. You’ll be asked to present your income tax returns over the past two years, and may even be required to accomplish IRS Form 4506, which will let them verify whether your ITR’s are the same ones in the IRS’s records.

Tip #2: Save Up Enough to Cover the 20% Down Payment

When you qualify for a mortgage, you have the option to pay a down payment as low as 5%, but this tends to hike the interest rate and increase the amount of money you’ll shell out in the long run. To get the best interest rate for your situation, opt to pay a 20% down payment.

The reasoning behind this is that a loan with a 5% down payment is considered high-risk, and they’ll cover that risk by raising the interest rate accordingly. On the other hand, paying a higher down payment is an indication of stable earnings and money in the bank, so they can afford to give you a lower interest rate.

Another tip: They’ll also expect you to have enough cash reserves to cover your mortgage payments for the next 60 days. These cash reserves can be in the form of savings and checking accounts, certificates of deposit, or money market funds. It does NOT normally include retirement funds – unless you’re willing to pay additional taxes and penalties.

Tip #3: Keep Your Credit Score Up

In most cases, a credit score of 620 is the minimum required to take out a home loan – and it will likely get you a higher interest rate. On the other hand, you’ll get the best interest rates when your credit score is at 760 and up. How well do you score?

Study your credit score right now, correct any errors, and work on bringing it up over the next several months. With professional credit repair help, you could raise your credit score by over 100 points in a matter of months.

Tip #4: Check If You Qualify For Special Programs

There are special programs out there that qualify you for lower interest rates on your home mortgage, or allow you a smaller down payment with no additional interest. If you or your spouse is a war veteran, you can qualify for a Veterans Affairs loan, which offers protection when you fall behind on your payments.

Other programs benefit first-time home buyers, such as those of the Federal Housing Administration and the US. Department of Housing and Urban Development. And if you plan to buy a house in a rural area, the U.S. Department of Agriculture mortgage program will help you.

Do Your Homework Ahead of Time

Ideally, you should study your home mortgage options two years in advance. This gives you enough time to get your finances in order to get the best deal possible.

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