August 28, 2012

Getting the best fixed-mortgage rate


No matter what the economy is going through at any given moment, there are things you can do to make sure that you get the best rate available. In the long run, the lower the rate, the more you will ultimately save if inflation causes rates to rise.

1.    Diligently maintain a good credit crating. The higher your credit score, the better your rate will be. Lenders are looking for people with a FICO score over 750. In order to achieve this, you’ll need to pay your bills on time – always – and keep your debt to credit ratio relatively low. Review a copy of your credit report, which you can get for free at annualcreditreport.com, and make sure that there aren’t any errors. If you find any, take steps to correct them immediately, and make sure the changes are made before you apply for your mortgage.

2.    Have 20 percent in cash to use as a down payment. You’ll need to prove to a lender that you can comfortably make a 20 percent down payment to be considered for the best rates.

3.    Avoid jumbo loans. A jumbo loan is one that is higher than the limits for a “conforming” loan. The range where a conventional loan ends and a jumbo begins is between $417,000 and $729,750. Check the limits in your area, and make sure that the fixed-rate loan that you apply for is under the conforming limit. Otherwise, you will pay a higher interest rate.

4.    Pay points. Points are 1 percent of the loan amount. By paying them, you can lower your mortgage rate.

5.    Don’t be a debtor. Lenders will do a thorough analysis of your financial situation. If you have a lot of debt relative to your income, you will look more like a high-risk borrower and not like an appealing candidate for a fixed-rate loan.

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