The Connection Between Credit Scores and Mortgage Rates

For quite some time, mortgage rates have been at record lows. No doubt you're already aware of this - whether in the papers or on the Internet, you must have seen "today's mortgage rates" being advertised everywhere! However, what you probably don't know is that not everyone gets access to these low rates.

Mortgage rates displayed in advertisements are generally aimed at prime mortgage borrowers using conventional mortgage financing. A prime mortgage borrower is someone who has a high credit score, as well as sufficient income and assets, to support a home loan approval.

But what exactly is meant by a "high credit score?" Usually, a credit score of 740 or above is considered to be sufficient to get the best deals. It qualifies the borrower for the lowest interest rates, and gives him or her access to a wider mix of solutions.

The lower the interest rate, the greater the "amount of home" a buyer can purchase. Additionally, a borrower can increase his monthly savings by refinancing an existing loan at lower rates.

On the other hand, as credit scores fall, the amount of interest that a borrower needs to pay on a mortgage rises. The difference between the best and worst rates may vary by as much as a full percentage point and a half.

Credit scores also influence whether a borrower can qualify for a mortgage or not in the first place. For someone with a credit score below 620, getting a mortgage can be a difficult prospect.

In order to increase your chances of getting the best mortgage rates, you need to first get your credit score up to an optimum level. Here are a few steps you should follow before applying for a home loan.

Review Your Credit Report: Ideally, you should check your credit report a year or so before buying a home. This will provide you with sufficient time to spot any errors in the report and change ways in which you use credit to improve your score. Carefully check everything from the way your name is spelled to whether each and every account is reported correctly. If there are any errors, take steps to correct them immediately.

Pay Off Debt: Lenders prefer borrowers to have low debt-to-income ratios (DTI). Credit card utilization ratios can really mess with your DTI. By reducing what you owe on credit cards, you can quickly boost your credit score. A good target would be to keep your total debt level at or below 36% of your gross monthly income.

Make Timely Payments: Delinquencies are very damaging to credit scores and can translate into big costs over time; hence, make sure that you make all your payments on time.

Avoid Applying for New Credit: Every new loan application lowers your credit score by a certain amount, so don't open any new loans or credit cards until after you've secured your new home.

Increase Your Savings: Home ownership may lead to unexpected expenses, so it is a good idea to beef up your savings before applying for a mortgage. Having enough savings to meet up to six months of expenses can make a prospective borrower quite attractive to lenders. Moreover, increasing your savings allows for a larger down payment, resulting in a better loan-to-value ratio and, oftentimes, a lower interest rate on your mortgage.

A lot of groundwork is required before you can apply for a home loan. Applying for a business loan, on the other hand, is quite easy! Fund&Grow provides an affordable way for any individual or business with good credit to receive $50,000 - $250,000 at 0% interest over the course of our 12-month program, with no back-end fees. Additionally, there's a money back guarantee on services for those who don't qualify. So what are you waiting for? Call us at (800) 996-0270 to learn more about this today!