June 3, 2020
House hunters searching for lenders online and comparing home loan interest rates may be seeing rates reported for FHA home loans below the three percent range, and compared to years past those rates are at incredible lows.
In the first week of June 2020, FHA mortgage loan interest rates were reported at 2.68%. According to some data aggregators, that percentage represents a 52-week low at press time.
The same sources report the high 52-week average for FHA mortgage loan rates at or near 4%. By the time you read this, those numbers will have changed up or down, but as a snapshot of the rates in a given moment in time these numbers are significant.
But the low rates you see online are not offered to all loan applicants; do you now why your lender offers some borrowers interest rates that may be closer to that 52-week HIGH instead of the 52-week LOW?
Ideal Borrowers, Ideal Conditions
The simple truth is that the home loan rates you see listed for FHA home loans and refinance transactions are not the same rates offered to every single person–there are a combination of factors that determine what rate you are offered.
The rates listed on websites assume a well-qualified borrower with excellent FICO scores and a solid repayment history. That means no missed or late payments for longer than 12 months. These are not the only two factors, but they play important roles in the process.
Those Who Are Not “Ideal” Applicants Have Options
So what if you are NOT one of these very well-qualified loan applicants? you may or may not qualify for a lower mortgage loan or refinance interest rate. What is the catch? Your credit scores and loan repayment history are critical.
Loan applicants with lower credit scores and/or missed or late payments in the last 12 months have a tougher time getting the most affordable loan possible unless the borrower has other things working in their favor.
What things? Coming to loan application process with compensating factors.
These can include making a higher down payment, or buying down interest rates by purchasing discount points; ask your lender about the cost and process of discount points as it applies to your new purchase or refinance loan.
Borrowers can get closer to better credit scores and other financial qualifications by working on improving credit early to avoid making these larger down payments.
This can and should include credit monitoring, and reducing your debt ratio by paying down your credit card balances below 50% (30% is ideal).
You should also avoid applying for any new credit in the 12 months or more leading up to your mortgage credit application. These factors can work together to earn you a more borrower-friendly interest rate.
Know the contents of your credit report starting at least a full year ahead of time, save up for a larger down payment (as a contingency) and establish a record of 100% on-time payments on ALL financial obligations for a full year or better ahead of your loan application.
Don’t underestimate your own ability to improve your credit scores and financial qualifications ahead of your home loan application–it may take some extra time, but the investment is worth the effort.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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