Qualifying for the Best Mortgage Rate

Many borrowers are finding that the record-low mortgage rates advertised recently are out of reach. So how can borrowers snag these best rates — which for the 30-year fixed-rate mortgage alone has been under 4 percent recently? Basically, they need to prove to lenders they are less risk: Lenders offer the best rates to those who they perceive as low-risk borrowers.

Here are ways for consumers to show lenders that they are low-risk borrowers, according to a recent article at The New York Times:

Credit score: According to one mortgage broker, ideal borrowers nowadays have a FICO score of 740 or higher to qualify for the best pricing.

Property types: Buyers of a duplex, four-unit building, or condo may have a rate premium added. Also, lenders will charge borrowers more if they plan to rent out the property rather than live there.

Down payment: Borrowers who put down at least 25 percent will most likely attract the best pricing, lenders say. “Lenders offer different breaks on rates if equity is higher, so you should ask what is available,” The New York Times article notes.

Also, borrowers who are able to get a low rate now may want to lock it in if they are heading to closing soon. “Lenders typically agree not to change an offered interest rate for 60 days, but borrowers confident of a quick closing may be willing to accept a 45-day rate guarantee, or even a 30-day lock, in exchange for a small discount, because the transaction’s speed helps the lender reduce its risk,” The New York Times article notes.

Source: “Mortgages: Shopping for the Best Rates,” The New York Times (Jan. 12, 2012)