The interest rate you get for your home loan will determine how much you pay in interest over the entire life of your loan.
Even small fractions of a percentage can add up thousands of extra dollars in interest payments. Whether you’re applying for an FHA loan, a VA loan or a conventional loan there are steps you can take to get your lender to offer you a lower rate.
One Quick Trick to Get a Better Rate
FHA guidelines require borrowers to have credit scores of at least 500. Mortgage applicants with a credit score of less than 500 will be unable to get an FHA backed mortgage. However, even if you qualify for an FHA loan, a VA loan or a conventional loan backed by Fannie Mae and Freddie Mac this doesn’t mean you’re guaranteed the best rate.
For example, a mortgage applicant looking for an FHA loan whose credit score is 680 will get a much better rate than an applicant with a credit score of 580. In many cases such an applicant could get a rate ½ percentage point lower than the borrower with a lower credit score.
According to the Federal Trade Commission, one out of every four credit reports has errors which may negatively affect the mortgage rate offer they’ve received from a lender. Consequently, millions of borrowers are needlessly paying a higher interest rate than what they deserve.
To get the rate that you deserve it is essential to obtain a copy of credit report and check it for errors. Correcting a mistake on a credit report can raise your credit score by as much as 100 points or more. In fact, many lenders will give you free access to your credit report as part of their rate quoting process.
Getting a Lower Rate with Conventional Loans and VA Loans
It is possible to pay less interest with conventional loans simply by making a larger down payment. For example, if you’re buying a condominium you can gain access to lower mortgage rates simply by paying 25% down instead of the 20% that many buyers put up. This could possibly be an attractive option if you’re able to afford the extra money down.
VA loans are unique in that the rates offered don’t change with high or low credit scores. Veterans are able to save money on their VA loan through VA streamline loans. These are no verification refinance loans which can give the borrower access to better mortgage rates.
With this type of loan the VA wives the typical documentation requirements that most lenders look for when they’re refinancing a home loan. This includes W-2s and bank statements as well as the need for a home appraisal. The only thing that VA requires for getting access to the loan is that it has a tangible benefit for the borrower.
No matter what type of loan you have, there is likely a way that you can save money on your loan by getting a better rate. It’s often simply a matter of finding the right lender who is willing to work with you.