May 17th, 2018 8:51 AM by Jackie A. Graves, President
To get the best FHA mortgage rate, check your
credit report, consider making a larger down payment, reduce debt, shop more
than one lender and explore state assistance programs.
loans are backed by the government, so you might think the interest rates are
regulated. But FHA mortgage rates vary by lender — they’re not set by the
Federal Housing Administration. That means you’ll have to do a little work to
get the best interest rate on an FHA mortgage. Here’s how.
It’s important to make sure your credit report and score
properly reflect you. Why? While FHA guidelines say
that borrowers can qualify with a credit score as low as 500, lenders make
their own rules about what they’ll accept. And the higher your credit score,
the better your interest rate will be.
So pull your free
credit report, which the three primary credit agencies are mandated
to provide you once a year without charge. In fact, you can get all
three at once if you’re about to apply for an FHA loan.
you get your report, look for mistakes and omissions. For example, a bad-debt
collection that you don’t recognize. Or a credit account that you’ve paid
perfectly for quite some time but doesn’t show up on the report.
If you find an error in your favor and get it corrected,
it might boost your credit score and earn you a lower interest rate.
FHA mortgages allow down payments as low as 3.5%. But
putting down just a little bit more can improve your interest rate. Lenders
consider loan-to-value when pricing a loan. A larger down payment lowers your
LTV while positioning you as a more-trusted borrower.
You can plug some numbers into the NerdWallet loan-to-value
calculator to consider different scenarios.
Another key measure lenders consider is your debt-to-income ratio,
which is how much you owe, divided by your monthly earnings.
a credit card that still has a balance due? Work to pay it off. There can be
two positive results: You’ll lower your debt-to-income ratio, and quite likely
improve your credit score.
Here’s a DTI calculator that
can help you work the numbers.
“yes” from a lender is a great feeling, and many people stop right there. But
it’s smart to continue shopping for better deals. Think about it: You know you
can qualify, you’ve got an approval in your back pocket, so what’s the
takes time and more paperwork. But finding a lender that offers you a better
FHA mortgage rate reduces the interest you pay over the life of the loan. That
can mean a lower monthly payment and saving thousands of dollars.
Use that as
an incentive to shop around.
We saved it
for last. Perhaps the best tip of all. Explore first-time home buyer assistance
programs offered by your state’s housing authority. Many of these nonprofit
agencies combine FHA mortgages with down payment and closing cost assistance.
We’re talking free money, in the form of grants.
that, but these state-sponsored programs often offer even more favorable FHA
mortgage rates through associated local lenders.
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