Things To Consider Before Locking In A Mortgage Rate
Unless you never turn on the television, read a newspaper
, listen to the radio, or browse the web, chances are you are well aware that mortgage interest rates are near all-time record lows. Most homeowners can experience significant financial benefits from refinancing or buying a home now. But before rushing into the mortgage or refinancing process, its a good idea to take thorough stock of your current financial situation to make sure the time is right for you to take out a mortgage.
Obviously, if your current mortgage involves a significantly higher interest rate than the rates that are being offered by todays mortgages, you might want to consider refinancing. But there are some situations where it might be wiser to wait before locking in your mortgage rate.
Staying Put
Maybe youre planning on moving in a few years or sooner. Because there are administrative and other costs associated with the refinancing process, if you plan on being in your home for just a few more years, it may not make financial sense to switch mortgages now.
Credit Rate
Like other loan interest rates, the lowest mortgage rates are only available to homeowners or home buyers who have very good credit. If your credit is not in tip-top shape, you may do better to take some time to repair your credit before applying for a mortgage. How can you tell if your credit rating is less than stellar? The first step is to obtain a credit report from each of the three major credit reporting agencies: Equifax, Transunion, and Experian. Every U. S. Citizen is entitled to one free report each year from each of these agencies. Your credit report will contain a list of every credit card or loan youve had for the past seven years even credit card accounts that have been closed and loans that have been repaid. Any liens or judgments made against you are also reflected on your credit report. In addition to a list of credit cards and loans, your report will reveal your loan and credit card payment history, including any late payments you may have made for the past seven years.
Once you receive your credit reports, go over each of them with a fine-tooth comb, examining them carefully for any errors. If you find errors for instance, an account that you closed indicates that it was closed by the lender, or a payment appears as being late when you have proof your payment was made on time dispute the errors with the reporting agency. Each agency maintains a website where dispute instructions are listed. In most cases, you will be able to dispute credit report errors using an online system. If the ruling is found in your favor, it may take a month or more before your report is updated.
Your credit score is also used in determining the interest rates youll be offered. Your credit score is issued by the credit reporting agency Fair Isaac Corporation, and the numerical score they issue is known as your FICO score. Basically, the FICO score is a numerical value determined by your credit history. You can request a copy of your FICO score. Be sure the score you request is truly your FICO there are many impostor credit scores (also known as FAKOs) which do not give you the same results as your FICO. Because your lender will be using FICO to determine your interest rate, you want to be certain youre looking at the same data.
Financial Consideration
You may also decide to postpone locking in a mortgage rate if you anticipate that your financial picture will be improving soon. If youve just begun a new career or changed careers, or if a spouse who is not working will be returning to the workforce soon, you may be better off waiting until your salary rises or your spouse returns to work before locking in a mortgage rate. Because your mortgage offer will be based in part on your employment history and your current income, you may be able to receive a better rate once your employment picture stabilizes or improves.
If youre buying a new home, you may want to wait until you have a larger down payment. This is especially true for home buyers who would need to take out a non-conforming mortgage for more than 80 percent of the value of the home. These mortgages generally involve higher amounts of risk for the lender, and so are associated with higher interest rates than traditional mortgages that are written for 80 percent or less of the homes value.
Todays mortgage rates are near historic lows, making them especially attractive both to home buyers and homeowners looking to refinance. But before locking in your mortgage rate, its a good idea to review your own financial situation and shop around for the best rates in order to ensure you get the best deal for your specific situation.
by: mor123
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