5 Steps to Get Qualified for a Home Loan Quickly with an Amazing Mortgage Rate

Getting a good rate on your home loan is about more than just getting several mortgage rate quotes. It also is about more than just your FICO score. The mortgage industry actually looks at several factors to determine if you can qualify for a home loan and what your rate will be.

There is plenty at stake. You can expect a wide variation in the interest rate you will pay depending on the various factors that we mention below. The difference will mean a much higher or lower payment each month and thousands in mortgage interest over the decades.

If you want to get qualified for the best rates for your home loan, you just need to bear in mind the following factors.

#1 Watch Your Credit Score

Mortgage loans today have tiered pricing. This means that your rate will be adjusted based upon the level of risk you represent to the lender. Of course, one of the biggest factors in your rate is your credit score. The credit scores you have will help to determine if you can qualify for the loan at all and what the rate will be. The higher your credit score, for the most part, the lower your interest rate. The only exception to this is for government backed mortgages such as through the FHA. Mortgage rates for these loans are usually uniform regardless of your credit score.

With conventional loans however, you will get the best rates if you are a borrower with a 760-credit score or higher. The lower your score, the higher the rate. The lowest score generally to get approved for a conventional loan is 620.

#2 Income and Job Stability

Mortgage lenders want to see that you have steady employment and pay for at least the last two years. If you have not been employed on a steady basis for the past two years, it is harder to get approved at a good interest rate. Ideally, you should have been in the same job for the past two years. Or, you have made a job change to a higher paid position in that period.

Lenders will look closely if you are self-employed. They want you to prove your income with tax returns for the past two years. They also want you to fill out form 4506 from the IRS that allows them to get a copy of your transcripts to make sure you sent the same information to the IRS.

#3 Debt to Income Ratio

You should be sure that your debt to income ratio is not too high for the type of home loan you are considering. The back-end ratio measures all of your debt payments each month plus your new house payment, divided by your gross monthly income. The front-end ratio just looks at your housing costs compared to your gross monthly income. Usually, banks want to see that your front-end ratio is no higher than 28%, and your back-end ratio is no more than 36%. If you want to get the best rates, it is wise to have ratios such as these.

#4 Down Payment

For the best interest rates with a conventional loan, you will need a down payment of 20%. A mortgage loan with 3% down is considered a higher risk so you can expect a higher rate.

It is smart to put down 20% if you cannot just for the interest rate. You also will have less of a mortgage to pay and will not have to pay for private mortgage insurance.

If you get an FHA loan, you only need to put down 3.5%, but you will have to pay mortgage insurance.

#5 Cash Reserves

For the best rates on conventional loans, you should have at least two months of cash reserves. This means that you have enough cash in the bank to make two full mortgage payments. If you are getting a higher risk loan or a jumbo mortgage, you may need to have more cash reserves.

These are the steps that you need to follow to get the best mortgage rate and to get approved quickly. Remember that rates are ticking up, and it may not be long before we see rates near 5%. When that happens, people who have the lowest interest rates will be paying a lot less in interest. So, do your best to follow the above advice so you can score the lowest rate.