Mortgage Rates

Buying a home is the biggest purchase that most people will make in their lifetime. While most people long to own a home, one of the main factors keeping many from doing so is their ability to acquire good mortgage rates when applying for home loans. The potential determining issue when it comes to acquiring desirable mortgage rates is the credit score of the person applying.

The all important credit score:

The Fair Isaac Corporation (FICO), is the main producer of credit scores. FICO takes information from credit reports of the three major credit bureaus (Equifax, Experian and TransUnion) and hands down scores to each individual ranging from 300 to 850. A lender can access this report whenever you apply for a home loan. Mortgage rates will vary greatly depending on this score.

Borrowers with higher FICO scores ranging between 760 and 850 can count on lenders offering them lower mortgage rates and more varied loan choices. A score of 620 or lower will usually place the borrower in the “subprime” category. Those who find themselves in this category will be quoted significantly higher mortgage rates and fewer varieties of loans. A FICO score of about 500-520 is usually the minimum that will qualify someone for a mortgage at all.

More than just the score:

Thankfully, though, the all important FICO score is not the only determining factor when it comes to getting a mortgage or good mortgage rates. There are some other things to consider that could offset a low credit score. Being able to offer a large down payment or having lots of cash in the bank can make a huge difference to a lender regardless of credit score. A low debt-to-income ratio always looks good to a lender as well. The fewer bills you have, the more likely you will be able to pay your home loan each month.

Steps to an improved credit score and better mortgage rates:

To truly get the best mortgage rates, make sure you check your credit report for any potential errors far in advance of applying for a home loan. Issues on your report that aren’t even your fault could lead to much higher mortgage rates. Everyone is entitled to a free, annual copy of each credit report of the three major bureaus by visiting www.annualcreditreport.com.

Pay down any outstanding balances on any credit cards you may have. Those accounts that have the highest interest rates are often the best to attempt to pay off first. And while it may be tempting, don’t close any accounts you currently have open. The lenders that that can give you the best mortgage rates want to see that you have plenty of available credit, even if it isn’t currently being used.