How to qualify for a Low-Interest Mortgage

A low interest rate lets you save money on mortgage payments. To qualify for a low-interest mortgage, there are several things you can do.

1. Improve Your Credit Score

Before negotiating a mortgage, get a credit report. A credit report contains your credit history, payment history, and credit score. Annualcreditreport.com offers a free credit report once a year. When you get the report, check for errors or discrepancies that might affect your credit score.

A credit score falls between 350 and 850. A score above 700 improves your chances of getting a low-interest mortgage. A credit score below 600 puts you in a higher risk category.

To boost your credit score:

  • start making regular, timely payments
  • pay past-due debts
  • pay vanishing collections. These are old or forgotten debts appearing on your credit report.
  • spread out your credit card debt. Keep your debt under 50% of the limit on any one card.
  • don’t make sudden changes. A new job or major purchase can lower your score.
  • ensure that credit card companies report the limits on your credit cards. Some companies report only the debt, without reporting the credit limit. Your card will appear to be at the maximum limit.

2. Make A Large Down-payment

A large initial payment can help lower your interest rate. Banks and lenders are more willing to give you a lower interest rate if you can put down at least 20%.

3. Assess Your Collateral

Any cash, securities or property you own can boost your chance for a low-interest mortgage. The more you can bring to the table, the better your chances, since your assets act as security.

4. Develop a Good Relationship with Your Bank

The lender can assign a higher or lower interest rate, depending on your credit score and the type of mortgage involved. If you’ve done business with the bank or financial institution in the past, and your history of payments is good, the lender is more likely to give you a low interest rate.

5. Take Advantage of Loan Programs

VA Loans began through the GI Bill after World War II, and allow a qualified veteran to own a home with no down payment. Eligible applicants get a low interest rate and fixed payments.

The Federal Housing Administration (FHA) provides loan insurance backed by the government. FHA assistance reduces the risk to lenders, helping you qualify for a lower interest rate. Even applicants with poor credit may be eligible.

You may also qualify for a low-interest loan program in your specific state or locality.

6. Shop Around

Do some background research. Talk to banks, online lenders, and mortgage brokers. Compare rates, assess your options, and ask questions. The more you know, the better you can make an informed decision.

Even in a tough economy, you can qualify for a low-interest mortgage. Shop around, improve your credit score, research and find the mortgage best for you.

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