mortgage

Qualifying for low mortgage rates today

Mortgage rates today are low, encouraging homebuyers and homeowners to look for new home loans. Borrowers can afford a larger loan when they get a mortgage rate of less than 5 percent instead of paying 6 percent or 7 percent.

Not only do low mortgage rates result in lower monthly payments, they also can shave thousands of dollars off the cost of the loan over time.

Some mortgage borrowers are opting for a shorter mortgage term of 15 years because the monthly payments are more affordable, thanks to low mortgage rates today. Others are trying out a mortgage refinance calculator to see if the cost of refinancing will be offset by significant savings.

In spite of these low rates, not everyone can take advantage of the opportunity to refinance or qualify for a new home loan. Borrowers need to meet today’s tightened credit guidelines to qualify.

To be approved at the lowest mortgage rates, borrowers need the highest credit scores, typically 740 or higher. In addition, the consumers need a reasonable debt-to-income ratio. Most lenders will qualify borrowers at a maximum of 45 percent of overall debt to household gross monthly income. Some borrowers with significant assets or income will be able to qualify even with slightly lower credit scores or higher debt.

A good credit score can have a big impact on qualifying for the lowest mortgage rates, and therefore on the monthly budget. A recent example on MyFICO.com compared mortgage interest rates and monthly payments on a $300,000 mortgage at different credit scores.

Borrowers with the highest credit scores (760 to 850) could qualify for a mortgage rate of 4.378 percent and a monthly payment of $1,490. Borrowers with a lower credit score (620 to 639) would qualify for a mortgage rate of 5.917 percent, resulting in a monthly payment nearly $300 per month higher, at $1,783.

Make sure your credit score is as high as possible before applying for a loan to take advantage of low mortgage rates today.

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Holden Lewis

Much ado about mortgages

A bunch of agencies are trying to expand the number of would-be homeowners who can qualify for mortgages. But I'm skeptical that these efforts will help many people.  ... Read more

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