Having a lower mortgage interest rate helps with every part of your life. When you’re paying less money every month for your home, you have more money to spend on other things, or you can afford to buy a bigger home or spread the payments over fewer months.
The best way to get yourself a lower rate is to raise your credit score. Your credit score is the basic building block of how mortgage companies build your rate, and helps inform us on what kind of a risk you are to lend money to.
Raising your credit score isn’t something that happens overnight, though. It takes real work to get that lower mortgage interest rate, but it’s worth it. Even lowering your interest rate a half-point can make a huge difference in what you pay each month, and over the course of your loan. Just as an example, the difference between 3.5% and 4% on a $200,000 loan will save you $20,427 over the course of a 30-year mortgage.
Before you get deep into mortgage shopping, it’s a good move to check your credit score in order to know what you’re working with. You can check in with the three major credit reporting agencies (Equifax, TransUnion, and Experian) and pull your credit. You can then start to work on issues that have popped up on your report and fix them before you apply for your mortgage.
What Credit Score Should You Shoot For
The FICO (Fair Isaac Corp.) score is the best barometer for your credit score. It gives you a grade from 300-850, with the higher scores showing that you are a worthy risk for lenders to take. If the score is over 800, that’s an exceptional score and you should qualify for the lowest rates around. In the 740 to 799 range is very good, from 670 to 739 is considered good, 580 to 669 is fair, and anything below that is poor.
Every lender will determine their own credit score limit, but even a few points can make the difference between being approved or not or getting a lower mortgage interest rate. You can save on your monthly payments just by fixing your credit!
Can I get a mortgage with a low credit score?
Sure, you can, but you’re going to pay a much higher interest rate than you would if you waited until you got your score to a higher threshold. You’ll pay more in interest, and have higher monthly payments. It’s also possible that you may have issues with borrowing in other areas, like getting a new car or credit card if you have lower credit.
Different loan types also have different credit requirements.
Conventional loans: You can get a conventional loan with a mortgage interest rate as low as 620, but there will be higher other requirements, including higher income and lower debt-to-income ratios.
FHA loans: The Federal Housing Administration will guarantee loans to borrowers with lower credit. You can qualify for an FHA loan with a credit score of 500 to 579 with a 10 percent down payment. Borrowers with a score of 580 or higher must put down at least 3.5 percent.
VA loans: The U.S. Department of Veterans Affairs backs VA loans. They are offered to active and veteran military personnel and their families, and are supplied by the Hero.Loan program. While the government does not have a minimum credit score to qualify for a VA loan, many lenders require a minimum score of 620.
Tips to boost your credit score
If you want to boost your credit score to get that lower mortgage interest rate, you have ways to do it. Don’t settle for the higher rates that you’re currently being offered, work on these steps:
- Correct any errors on you r credit report. Once you have requested your credit score, check it over very carefully. Remember, you can get a free copy once a year from each of the three major agencies: Experian, Equifax and TransUnion. If they have inaccurate or missing information, contact the agency and file disputes with them and the creditor. Make sure to provide proof, including supporting documentation if available.
- Reduce your credit card debt and other bad debt. The amount of debt that you have compared to the credit you have available is called your credit utilization ratio. To figure your out, divide your total amount of debt into your available credit. If you have $5,000 in debt and $10,000 in credit, your credit utilization ratio is is 50 percent. You want that ratio to be down around 35 percent or lower
- Pay your bills on time. Payment history is 35 percent of your credit score. Late payments stay on your credit report for seven years, but their impact on your score diminishes over time. They are basically drags on your credit that will continue hurting you as long as they are there. Make your payments, or make arrangements to, and you’ll see that rate increase.
- Keep your current credit open. You might think that getting rid of your closed credit cards is a good idea, but that will lower your credit utilization ratio, so keep them open where you can.However…
- Don’t add any credit or new loans. Keep your debt lower and you’ll see your credit score increase, as well as lower your monthly bills.
Bottom line
These fixes won’t improve your credit score overnight, but they are well worth the time to make sure that you can get a higher credit score and a lower mortgage interest rate on your loan. Discipline and saving will help you buy a house with the lowest interest rate available and save you money.
Call The Home Loan Expert Team at 800-991-6494. You can always apply online at hero.loan for your VA Loan, and www.thehomeloanexpert.com for your other mortgage needs, and we’re also open on Saturdays and will come to you to help close your loan. We work hard to make it easy on you. Nobody gets lower rates on better loans than The Home Loan Expert, Ryan Kelley, why go anywhere else?
The Home Loan Expert
