Will you qualify for a low mortgage rate?

Everybody wants a low mortgage rate. But not just anyone will qualify. Below is the profile of a borrower that should qualify for the lowest mortgage rates.

Good Credit Scores – Credit scores of 740+

No or very limited derogatory information on the credit report

Job Stability – Same line of work for two years or more.

Can prove income and assets

20% down payment or 20% equity if refinancing

Low debt to income ratios

Lots of assets – 401K, IRA, Mutual Funds, Savings Accounts, etc.

If the above profile does not sound like you there are a couple of other ways to get a low mortgage rate.

The first would be to buy down your interest rate. Yes, you can actually pay to lower your interest rate. This can get fairly expensive and usually is not a good idea. But it is well worth looking at. For example you may be able to pay a fee of 1% of your loan amount to lower your interest rate by .25%.

What you really need to be aware of is how long it will take to recoup your investment. Simply divide the 1% fee by your monthly savings and that will give you the number of months it will take to recover your costs.

If you are planning on selling or refinancing before you recoup the cost of buying down your rate, it is obviously not a good choice. You should also consider what the 1% fee would do if you were to apply it to your down payment or principal. Many times you will save more money by doing that than buying your rate down.

Another option for a low mortgage rate is to consider an adjustable rate mortgage or ARM. There are many options available and a few have starting rates in the very low single digits. The beauty of the ARM is that the interest rates can be anywhere from .25% to 2.5% lower than a 30 year fixed interest rate.

The ARM that has the lowest mortgage rates will be the one that is most volatile. These will be the products that adjust on a monthly basis. The big question that you need to answer when shopping for a low mortgage rate is how much risk am I willing to take or how much am I willing to pay.