When you apply for a mortgage or a home equity loan there are things you can do to ensure you are getting the best interest rate. The interest rate you receive for your loan largely depends on your credit score. If you have lousy credit you will not get a prime interest rate; however, you can still improve your interest rate with a few easy steps.
To get the best deal for your money you need to do your homework and research mortgage lenders and their products. To avoid hurting your chances of qualifying for the best mortgage keep the following items in mind.
Pay Your Bills on Time When Applying for Your Mortgage
Even if you have a good credit rating, late payments could hurt your interest rate. If you are refinancing your mortgage or buying a new home, it is important to demonstrate a good repayment history. You need to have the history before you apply for the mortgage. Make sure your credit card payments are up to date, keep their balances low, and make your car payments on time. Having a few late payments on your record won’t prevent you from being approved; however, it could cost you a higher interest rate. Establish at least a six month record of on time payments prior to applying; this will improve your credit score and work in your favor.
Keep Credit Inquiries to a Minimum
Many homeowners make the mistake of allowing too many lenders to run their credit when shopping for a mortgage. When shopping for a mortgage loan ask the lenders for no obligation quotes. This will allow you to compare quotes without the lenders accessing your credit history.
When you request a no obligation quote the lender will ask for a description of your credit history. For this reason you should request a copy of your personal credit history prior to shopping for a mortgage loan; requesting this copy does not count as a credit inquiry and will not adversely affect you.
Keep Your Debt to Income Ratio Low
Applying for credit cards or a car loan at the same time you are shopping for a mortgage is a bad idea. The more open lines of credit you have the higher your debt to income ratio will be. Carrying a high debt to income ratio makes you more of a credit risk for your mortgage lender. If you have unused credit cards it is best to close them at least three months before applying for your mortgage. Don’t forget about department store charge cards, even if they have a zero balance they can affect your overall credit rating.
My name is Rob Regehr and I’m a personal finance writer with a chip on my shoulder for banks and brokers that take advantage of my friends and neighbors.
