Getting the right home loan is very important when you are looking to buy a home. The good news is you can be a homeowner even if you don’t have a pool full of cash. Nowadays, there are many cheap home loans in the housing market that would be ideal for you.
But getting a good mortgage involves a lot more than just comparing your options. You need to take into account what interest you will have to pay, your FICO score, and various other factors that will determine whether or not you will qualify for a mortgage.
To make the process a lot smoother for you, we’ve put together a list of tips to help you get a good mortgage rate within your budget.
1. Consider getting an FHA household loan
A good alternative to a traditional mortgage is one FHA home loans. FHA home loans are intended for borrowers who are not eligible for a traditional home loan.
You need a minimum FICO score of 620 to qualify for a conventional mortgage. For an FHA home loan, you need at least 500 to qualify.
2. Get your credit report
Start by requesting a credit report and checking for possible errors at least 6 to 8 months before applying for a mortgage. You may find mistakes that affect your creditworthiness. So do not assume that the data is correct.
Look out for outdated information or information that might not belong to you due to bug or identity theft, and fix it if you find it.
3. Improve your credit rating
Improving your credit score is one of the best things You can do this when you want to get not just a loan but one with an attractive interest rate.
The higher your credit rating, the better your mortgage rate. Even the smallest boost can improve your credit score. For example, if you have a FICO score of 650 and you increase that to 680, you can cut your interest rate by more than 0.60%.
To improve your credit score, make sure your bills are paid on time and reduce the amount of your debt.
4. Make a large deposit
Nothing impresses a lender more than the seriousness of a sizeable down payment. A large down payment reduces the LTV (loan to value) ratio and improves your chances of getting a good mortgage rate.
The LTV ratio is calculated by dividing the home loan amount by the purchase price of a house. For example, imagine a scenario where you want to buy a home for $ 120,000, put down $ 30,000 (25%), and apply for a $ 90,000 mortgage. Your LTV ratio would be 75% or 0.75.
However, if you pay a $ 45,000 down payment and apply for a $ 75,000 mortgage, your LTV will drop to 62.5%, which will improve your chances of qualifying for a lower mortgage rate.
The smart way to save thousands on a home loan
Interest rates are not going to stay as low as they are today, so act today. The tips above should help you qualify for a home loan that fits your budget.
Remember to withhold large purchases before approving your application as lenders tend to have a bottom line credit check.
Brad Bernanke story