How To Get Mortgages Approved With Lower Interest Rates?

Get your Mortgages Approved With Lower Rates
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09:37 AM 28 Feb 2019

Most people think that they need good credit to buy a house. But that is only true for mortgages with a fixed rate. If you want a 15 or 30 year fixed rate mortgage, you generally need a FICO score of at least 620 or higher.

However, there are loans specifically designed to help home buyers with lower credit to achieve homeownership.

The minimum credit scores needed for different types of mortgages are shown in below table.

                    Type of Mortgage

                           Necessary Credit Score

                       Conventional loan

                                      620

Department of Agriculture (USDA) and Veteran Affairs (VA) loan: No universal standard specified, but Quicken Loans requires

                                      640

Financing from the Federal Housing Administration (FHA)

                                      580

Mortgage Loans without Initial Payment and With Low Initial Payment are

FHA Loan (3.5% Down Payment)

FHA (Federal Housing Administration) loans allow an initial payment of 3.5 per cent. Insured by the Federal Housing Administration (FHA), these loans are among the most flexible and lenient for current home buyers.

FHA loans are usually more appropriate for buyers with a low down payment, with average or below average credit scores. 

VA Loans (No Down Payment Is Required)

The loans of the Department of Veterans Affairs (VA) are loans guaranteed by that entity. Generally, VA loans are available to active duty members of the US Army. US; service members discharged with honours; and many surviving spouses.

VA loans are unique among mortgage programs with no down payment and low down payment because they do not require an initial payment of any kind and never require the buyer to make a mortgage insurance payment.

What do I need to qualify for an FHA loan?

  • A lender approved by the FHA
  • FICO score of at least 560
  • Initial payment of at least 3.5% of the purchase price of the house

How is the credit score calculated for obtaining mortgage loans?

This credit rating, also called Fico Score, is calculated taking into account the following factors:

Credit history, Debt ratio - available credit or Percentage of debt, and Payment history.

Credit History:

This factor counts the time you have using your credit card. The longer that time, the higher your score will be.

Debt ratio - Available Credit or Percentage of Debt:

Here is the relationship between the amount of money you owe and the available credit that you have not used. You will have a higher score if this ratio is less than 40%.

Payment History:

Here is the time in which you make the payments, so the score will depend on the arrears you have in the payment or how satisfied you are in paying.

What is the minimum score required to buy a house for the first time?

The Federal Housing Administration previously required a minimum score of 620, however, recently set this minimum rate at 640. Hence, if your goal is to obtain a good interest rate, it is advisable to reach a minimum score of 680. However, with a score of 680 or more, it is possible to find a good interest rate.

How can you get an adequate score that guarantees you the purchase of a house?

It is not always easy to move up credit rating scale and get a loan for the purchase of a home, and the truth is that the payment of the bills throughout the year if it can help you obtain an improvement in the score of qualification.

On the other hand, if you want to obtain a loan to acquire your first home, set a goal to look beyond the credit rating. A first step would be to calculate your income according to the loan you want to obtain. If the financial institution realises that your income is relatively low, it is very likely that you will be denied the loan. Also, these financial institutions will examine and verify your debt-to-income ratio, through the process of dividing your gross income by all debts in your name.

What is the score required for mortgage loans with low-interest rates?

As the credit score is the first thing that the financial institution will pay attention to measure your ability to pay, it is necessary that when you think about buying a home, you report how much is the minimum required by that institution, as well as there are some of these credit institutions are very demanding in terms of the height of this indicator, there are others who are willing to be less demanding in terms of the level reached by this score. For example, taking FHA loans as a starting point, it can be pointed out that these mortgage loans are very popular among first-time homebuyers because the minimum required score is 580 FICO, and they also demand fairly low initial payments.

In contrast, in financial institutions like USDA, for both VA loans and conventional loans, the minimum credit score you must have is 620. However, for those with a score of 580 who aspire to the low-interest rates of these institutions, it can be said that although obtaining the loan is difficult, it is not completely impossible.

However, it is always advisable to try to increase the credit score before applying for the mortgage loan.

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By: Shailaja K