August 27th, 2019 7:46 AM by Jackie A. Graves, President
Even though rates are low right now, you may need to take steps to
qualify for the lowest ones
Good news for potential homebuyers. While mortgage rates have been creeping
higher, they're still at almost record lows. Now, with the May 1
announcement of the Federal Reserve that it will not raise interest
rates, mortgage rates are likely to remain the same or even decrease.
At present, interest rates on a 30-year fixed mortgage average
around 4.20 percent, according to HSH Associates, a mortgage information website. Fifteen-year fixed mortgages now average about
Given concerns about a future recession and international
political upheaval, rates may be good for a while.
"Global turmoil is a mortgage shopper's best
friend," says Keith Gumbinger, a vice president at HSH. "We will
have lower fixed and adjustable mortgage rates until the volatility
But even though rates like these are attractive, banks don't give
them to just anyone looking to buy a home. John Walsh, founder and chairman of
Total Mortgage Services, a Milford, Conn.-based mortgage lender, explains that
to get the best rates, borrowers need to meet certain criteria, such as having
a good credit score.
Here are five situations that could prevent you from getting the
best mortgage rate out there right now—and how you can improve your chances.
qualify for a great mortgage rate, you want to show lenders that you've been
consistently earning money and that your income has remained stable or has been
rising. If those things are true, submit IRS annual and quarterly estimated
income-tax returns over the past several years. In particular, be sure to
submit Schedule C, "Profit or Loss from Business" which can show that
you have a profitable business.
If you work for someone else, or you are or have been employed by
a company but have had a recent gap in your employment history, submit several
years of tax returns. That can make a lender more confident about your
Your FICO Score Is Below 760
credit score is the most common one used by lenders; the best mortgage
rate and terms go to borrowers with a minimum FICO score of 760. Get a free copy of your score to see where you
stand. Also, check your credit reports from the three major
credit-reporting agencies—Equifax, Experian, and TransUnion for errors; you're entitled to one free report from each company
Once you've gotten your reports, you can take steps to improve
your score. First, look for errors, such as accounts that aren't yours or black
marks caused by identity theft, and dispute them. That should raise your credit
score quickly. Then focus on paying down debt, especially any debts
that have been turned over to collectors.
Keep in mind that the new FICO 9 score won't hurt your rating if
debt in collections has been paid. Also, be sure to pay your bills on time
going forward. Just a couple of late payments can negatively affect your credit
score for one year or more.
You Have Too Much Debt
want your mortgage payment to be 28 percent of your monthly gross income. All
household debt—mortgage, property taxes, private mortgage insurance, and home
insurance—shouldn’t be more than 36 percent of your gross income.
If yours is higher, you can get a better mortgage rate by applying
for a smaller loan. Focus, too, on paying off that other debt and, if possible,
take steps to increase your income.
Be sure to pay off credit-card balances every month
so that your debt levels don't rise further, and don't take on new loans or
open new credit card accounts. If you do, the credit card issuer will do an
inquiry into your credit history, and that can hurt your score.
You Can't Afford to Put 20
possible to get a loan with as little as 3 percent down, but you'll have to pay for private mortgage
insurance which protects lenders if you can't make your payment.
A better option is to find ways to put the most money down that
you can—up to 20 percent. One way to do this is to look into programs
that provide loans or outright grants to fund down
payments. You can search to see what programs you may be eligible for at downpaymentresource.com.
While saving more may not be an option, consider selling assets
(such as a car) to help you put more down. If you're a first-time homebuyer you
can also borrow up to $10,000 from your IRA without triggering the 10-percent
IRS early-withdrawal penalty.
Another option could be to turn to family members. A relative can
give you up to $15,000 each year without facing any federal gift tax. So your
parents could give you $30,000 total.
You've already been denied by one or two lenders. Most lenders typically use
the same basic standards to approve you for a mortgage, but if you have been
rejected or offered rates higher than you'd hoped for, find out why and do what
you can to fix the problem.
The first step is to ask lenders why they are giving you a less
than adequate rate to see if you can address the problem. While searching for a
better rate, include banks, credit unions, and savings and loan
associations. Also, consider turning to a certified mortgage broker to help you
get a better rate. You can find one through the National Association of Mortgage Brokers.
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