How to get the best home loan.

May 05,2024 | Posted By Flavia Brown in Real Estate

Four steps to getting the most favorable home loan:

+ Improve your credit score. A lower credit score won’t prevent you from getting a loan, but it can make a big difference between getting the lowest possible rate and more costly borrowing terms. The best mortgage rates go to borrowers with the highest credit scores, usually at least 740. In general, the more confident the lender is in your ability to repay the loan on time, the lower the interest rate will be.

+ Save more for a down payment. Having a larger down payment can help you obtain a lower mortgage rate, and if you have 20%, you’ll avoid private mortgage insurance (PMI), which adds costs to your loan.

+ Understand your debt-to-income ratio. Your DTI ratio compares your total monthly debt payments against your gross monthly income. Not sure how to figure out your DTI ratio? Go to Bankrate.com for a DTI calculator. A DTI of 43% is typically the highest ratio a borrower can have and still get qualified for a mortgage, but lenders generally seek ratios of no more than 36%.

+ Check out different mortgage loan types and terms. There are many options to a 30-year fixed rate (and lower rates) -- shorter terms like 15-year, adjustables, government programs (like CalTAP Plus) for teachers and other city and state employees, FHA loans, VA loans, first-time buyer programs, and down payment and closing costs assistance loans.

Note from Bankrate: How are mortgage rates determined?

It might seem like a bank or lender are dictating mortgage terms, but in fact, mortgage rates are not directly set by any one entity. Instead, mortgage rates grow out of a complicated mix of economic factors. Lenders typically set their rates based on the return they need to make a profit after accounting for risks and costs. The Federal Reserve doesn’t directly set mortgage rates, but it does set the overall tone. The closest proxy for mortgage rates is the 10-year Treasury yield. Historically, the typical 30-year mortgage rate was about 2 percentage points higher than the 10-year Treasury yield. In 2023, that “spread” was more like 3 percentage points.

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Best regard,

Flavia Brown, Realtor® (18 years)
Real estate author
CalDRE #01729313
Realty One Group United
Hermosa Beach, CA
homesbyflavia@gmail.com
homesbyflavia.com
310-702-0293 (cell/text)

P.S. Would you like to be more real estate savvy? I recently finished writing a book that may be the most informative and helpful real estate book written in many years. For example, chapters 1-3 explain in detail every step in a real estate transaction for buyers and sellers. It is currently a Word document waiting to be professionally formatted and published. You may have a free e-edition. Click here: https://homesbyflavia.com/blog/real-estate/a-most-informative-real-estate-book-by-flavia

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