If you are considering buying a home, you may wonder what kind of mortgage rate you are going to have to pay. Your mortgage rate plays a big part when it comes to determining how much home you can afford. The higher the rate, the higher your payments. What you may not realize is that your credit score will help determine your mortgage rates.
How Important is Your Credit Score when it Comes to Your Mortgage Rates
You may be surprised to know that your credit score is the most significant factor when determining your mortgage rates. In fact, the higher your credit score, the lower the mortgage rates will be. The opposite is true as well. The lower your credit score, the higher the mortgage rates you are offered will be.
Currently, to receive the best interest rates for your mortgage, you will need a credit score of 740 or higher for most lenders. If your credit score is under 620 it can be very difficult, if not impossible, to obtain a mortgage, and you will be paying much higher mortgage rates.
In fact, there can be up to a 1 1/2 percent difference between the best rates and the worst rates. While that may not sound like much, over a thirty-year mortgage, it can add up to paying thousands of dollars more in interest. For example, the different between 4 percent and 5 percent interest on a $200,000 mortgage with a 30-year fixed rate is over $42,000 dollars.
How to Ensure You Receive the Best Mortgage Rates
If you are planning on buying a new home, you will want to obtain a copy of your credit report about a year beforehand. That way if there are errors on the report or if you have issues that need to be dealt with, you will have time to do so before you apply for a mortgage. It also gives you time to improve your credit score.
Be sure to really take some time to look over the report. Go so far as to check account numbers and balances. Errors do happen, but they can be corrected if you start the process early enough. If anything appears wrong, such as an incorrect balance or an account that doesn’t below to you, go ahead and dispute it online with the credit reporting agency.
Once any errors are corrected, be sure to take care of any outstanding balances. Mortgage lenders want to see that you use less than 30 percent of your available credit on any one credit card or line of credit. If any of your balances are higher than that, be sure to make payments to lower the percentage before you apply for a home loan.
Finally, when you are getting ready to buy a home, you do not want to apply for any additional credit. If you open several new lines of credit at the same time, it can lower your credit score.
When it comes to getting good mortgage rates, your biggest asset is having a great credit score. By taking the time before you apply for a home loan to get your credit, and credit score, in the best shape possible, you should receive a better interest rate. A little work now can save you thousands of dollars in interest down the line.
This information was brought to you by BetterLoanChoice
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