5 Qualifications for a Low Interest Home Loan

Getting a low interest home loan depends on a number of personal factors in your application. While the majority of the factors listed below are personal, there are also market factors that will affect your home loan rate. If you meet personal criteria for a low interest loan, though, you will be less affected by swings in the market at large.

Good Credit Score

The first thing any lender will consider when sourcing your loan is how you have performed with credit in the past. Borrowers who have taken out a number of installment loans in the past and paid them off will be the most attractive. If you have never had an installment loan, this will hurt your chances of getting a good rate even if you have performed well in managing your credit card debt. Further, those borrowers who have only positive credit marks but a short credit history may be penalized in their interest rates.

Large Down Payment

The more you can put down, the better deal you will get. You will have less total funds in your mortgage. Further, you will providing the lender with a sign of good faith in your ability to save and manage money. Borrowers who have very low down payments often scare mortgage lenders who wonder if they can truly afford the home. You can also avoid paying mortgage insurance on a loan lower than 20%.

Shorter Loan Option

Extending the life of your loan will typically lower your monthly payments but raise your interest rate. The borrower needs to anticipate and compensate for inflation in that time period. Paying off your mortgage in 10 to 15 years will lead to a lower interest rate and a lower amount of total funds paid to the mortgage company.

Stable Income

One factor many borrowers forget is the income consideration. It is best if all applicants on the loan document have a stable employment history. Working for the same company for at least two years with reasonable raises and promotions is a sign of expected continual income growth. If one of the applicants on the loan has been laid off, recently started a new job or is self-employed, the interest rate may go up. Some purchasers decide to leave one member of a party off an application for this reason. If the single applicant has an income high enough to cover the mortgage payment, this may be a good option.

The Right Time to Buy

All the personal factors listed above will not save you if you are looking to purchase at a bad time. You should look for a time when the national interest rate is fairly low. However, a rate close to zero may be indicative of a credit market collapse, meaning lending institutions will be holding back from new loans. It is not best to buy at the top of the market either, when loan rates and home prices are their highest. While you may never be certain when is truly the best time for you to buy a new home, paying attention to these factors helps you make a more informed decision.