The mortgage industry examines a great number of factors that to determine if you qualify for mortgage or not and what will be the interest rate. Getting a reasonable interest rate requires a lot of hard work, as it is more than just comparing the prices. Current mortgage rates always depend on several factors, and here in this article, we will know about some of those factors. The difference between the higher payments and thousands of dollars in interest payments over the life span of the loan. To get the best mortgage rate, you need to be qualified for that.
Let us know some of the criteria which are evaluated by the mortgage lenders and some refinance tips that can help in improving the current standing which is as follows:-
- Credit scores
The rates of mortgage lending are bases on various criteria, and one crucial criterion is the FICO credit score. This credit score is useful in determining whether you qualify for the loan or not, and if qualified, then what will be your interest rate. If your credit score is higher, then you have to pay fewer mortgage rates. People who have a credit score of 620 are qualified for the mortgage, and less is not.
If you are unable to meet the requirements of the minimum credit score, then you must monitor your credit scores and make improvements.
- Employment and income stability
Candidates preferred by mortgage lenders are those who have a steady income from the past two years. If you have been unemployed for a more extended period of time, you might not be qualified for a mortgage. Lenders are quite strict when it comes to income. They will require all the documents of income with income tax return files of past years.
- Debt-to-income ratio
The debt-to-income ratio comes in mainly two forms, which are the front-end ratio and the back-end ratio. The total monthly debt payment addition to new housing payments is divided by monthly gross income is the back-end ratio. The front-end ratio mainly focuses on housing costs, which excludes all other debts. There is a fixed ratio which the bank wants to see for the debt-to-income ratio in which the back-end ratio must be 36%, and the front-end ratio must be 28%.
- Down payment
To get the best mortgage rates, you must have a minimum down payment of 20% of the actual purchase price of your home. Mainly mortgage rates depend on the risk factors like a loan with a 5% down payment is considered as a higher risk and will carry a higher interest rate than a loan of 30%. When the down payment is less than the purchase price, then it is mandatory to pay private mortgage insurance.
- Cash Reserves
Basically, these are measured in terms of the total number of months of house payments, which is saved in cash. This includes money which is saved in checking, money market funds, and certificates of deposit. It goes according to the mortgage as if there are higher risk mortgages; then, cash reserves will be higher.
You need to do comparison shopping for finding out the best mortgage rates. There are many options by which you can get to know about mortgage rates and other things. To gain more knowledge on options, you can check out the points mentioned above.