One of the best ways to ensure that you get the best mortgage interest rate possible when you’re in the market for a new home is to improve your credit score. By taking the time to evaluate your credit score and increasing it, you’ll be more likely to be offered a favorable interest rate.
1. Evaluate Your Credit
Start by getting a credit report from each of the primary credit agencies: Equifax, TransUnion and Experian. You are entitled to a free credit report from each of them once per year.
As your largest financial obligation, your mortgage loan is an area where it’s a good ideat to attempt to save money. Due to the coronavirus and the effects that it has had on the economy, the Federal Reserve Bank has lowered interest rates to their lowest in history. But does this mean that it’s a good time for you to refinance your home’s mortgage?
Why Refinancing Now is a Good Idea
The first thing you probably think about when you are considering refinancing your current mortgage is the money you can save over the lifetime of your loan. In addition, you could also significantly lower your monthly payments. This could free up more money for everyday expenses, home improvement projects or even doubling up on mortgage on occasion so you can pay off that debt even faster.
When you’re shopping for a mortgage loan, there are several important costs that you’ll want to be aware of. By gathering this information from each of the lenders that you are considering, you’ll be able to make an informed choice regarding which one is offering the best terms for your particular circumstances.
Costs You Probably Already Thought Of
There are several costs that you have probably already thought of or that you already know. These include the amount of a down payment you can afford. You’ll also probably know the interest rate that is charged by each lender as well as the monthly payment. While these are important costs that you’ll need to know when making a decision regarding a lender to use, they are not the only information you’ll want to know.
The Federal Open Market Committee (FOMC) slashed interest rates again by 25 basis points on October 30, 2019. This is the rate that sets what banks charge other financial institutions for lending overnight. Additionally, it’s also linked to nearly all types of revolving consumer debt.
Is This the Last Interest Rate Reduction?
This cut, though widely expected by the nation’s financial markets, might be the last one for some time if the Fed’s indications are accurate. Though it was the third time in 2019 the Fed dropped the rate, Chairman Jerome Powell noted that the nation’s economic expansion is maturing and that the cut was an adjustment within that cycle.
The debt-to-income (DTL) ratio is a standard yardstick that many lenders use to determine the soundness of the mortgage applications that come across their desks. In fact, one of the most common reasons for denying a loan is because the potential borrower has monthly payments that exceed the standard limit of 43 percent. Possible reform that could go into effect in 2021 could ease these standards and make it easier for some to qualify for a mortgage.
How DTL Ratios Work
While lenders look at a number of factors when scrutinizing an application for a mortgage, the DTL ratio is one of the most important. It’s determined by comparing the borrower’s gross monthly income with their recurring monthly debts.
One of the many appeals of purchasing a home is the equity that you’ll eventually build up. As you make your mortgage payments, you’ll be primarily paying down the interest on the loan at first. Over time, though, the amount you owe on your mortgage is reduced through a process known as amortization. The result is the buildup of equity in your home.
Using Equity to Fund Your Life
Around the time that homeowners start to build equity, many of them start thinking about renovating or other major projects that are designed to improve their home and make it better suit their needs. In other cases, you might be looking for ways to fund your children’s college education. Regardless of why you want to access your home’s equity, you have two primary options for doing so: a home equity loan and a cash-out refinance.
Jerome Powell, the chairman of the Federal Reserve, made a surprising announcement on July 31. For the first time in more than 10 years, the Fed slashed interest rates. The reasoning behind this move, according to Powell, was to extend the country’s economic expansion so it can continue to set records.
Dissecting the Interest Rate Reduction
The comments Powell delivered on July 31 in tandem with the Fed’s announcement were largely positive. It was a desire to keep the economy looking favorable that lead to the decision to lower the interest rate by a quarter percentage point. This move is designed to make it more affordable for consumers to borrow money to purchase cars, homes and consumer goods.
For first-time homebuyers, obtaining financing isn’t the aspect of a mortgage they need to contend with. There are also a number of different types of loans available. While the options can be overwhelming, careful research can ensure that you understand each and help you find the one that best suits your situation.
1. VA Loans
VA loans are limited to veterans and members of the military. Often easier to qualify for than a conventional loan, these mortgages are guaranteed by the U.S. Department of Veterans Affairs. It’s important to make the distinction that in spite of being the guarantor, the VA does not actually make the loan.
A reverse mortgage is officially known as a Home Equity Conversion Mortgage (HECM). A tool that taps into a home’s equity while providing retirement income for homeowners aged 62 years or older with no monthly payments, reverse mortgages are being increasingly common. While most reverse mortgages are federally insured and are a great financial decision for many homeowners, there are still many myths surrounding them that can make it difficult to decide if they are the best choice.
In spite of intense pressure from President Trump, the Federal Reserve did not change its key interest rates when it met last. Instead, the Fed reiterated its stance that it probably not hike rates in the near future. The reasons for their decision included low inflation and a strong economy.
Does a Lower Interest Rate Make Sense?
Trump stated that he wanted the economy to continue to strengthen so he urged the Federal Reserve to lower rates in hopes that it would spur greater growth. Some experts, such as Kathy Bostjancic, an economist at Oxford Economics, projects that slashing the interest rate by one percentage point in 2019 will help the economy grow by about one-half of a percentage point in 2020. In order to be fully beneficial, though, businesses would need to be able to find enough qualified workers so they can make more goods and provide more services. Already, however, companies are having a hard time doing that because, at 3.8 percent, the nation’s unemployment rate is the lowest it’s been in close to 50 years.