- High-risk mortgage applicants often receive higher mortgage rates on their home loans. Lower your risk by improving your credit score before applying for a mortgage loan. Mortgages rates are basically the fee charged by banks and mortgage companies. Every home loan has an attached interest rate, and the interest affects your mortgage payment. A credit score in the 700s helps you qualify for ideal rates. Achieve a higher score by checking your credit report for errors, paying bills on time and keeping consumer debt to a minimum.
- Banks and mortgage companies prefer applicants who show signs of stability, which includes keeping the same job for a minimum of 24 months. Lenders are flexible, and some may approve your application with a short employment history. However, because you haven't demonstrated stability by means of steady employment, these lenders may assign a higher mortgage rate to your home loan.
- The down payment on your mortgage loan also affects the mortgage rate. While you're not required to pay a huge down payment, such as 20 percent, to qualify for a mortgage, the higher the down payment, the lower the mortgage rate. If selling a property to acquire a new one, consider taking money from the sale and using these funds as a down payment on your next property. Save tax returns for a few years to help you qualify for a low-rate mortgage, or borrow cash from a life insurance policy or retirement fund.
- Mortgage lenders decide your mortgage rate after reviewing your credit history and down payment amount. If you want to lower your rate even further, pay mortgage discount points to buy a better interest rate. Mortgage points are expensive and cost 1 percent of your mortgage loan. Because each points results in a .25 reduction, buying two mortgage points can reduce your home loan rate by .50 or half a percentage point. If you are buying a $150,000 home, two discount points will costs $3,000, paid to your mortgage lender at closing.
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