Mortgage rates are at historic lows. Since government assisted mortgage behemoth Freddie Mac started keeping records of traditional 30-year fixed rate mortgage statistics in 1971, the current offerings are the lowest on history. For the majority of 2010, lenders have been charging a scant 4.5 percent interest rate and average .7 percent point to consumers seeking home loans. The industry's premier mortgage rate origination tool Mortgage Marvel, has hundreds of home loan opportunities for potential borrowers, however, only individuals that can meet the stricter underwriting qualifications for loan approval will be able to tap into the offers.
The time has never been better to buy a home and individuals looking to get in on the action, need to ensure that their finances, credit history and credit scores are up for the task. Lenders reserve their best loan rates for the prime mortgage market as defined by Mortgage Marvel as "The vast majority of the mortgage market that is designed to provide market interest rate mortgages to borrowers with good credit histories and verifiable income and assets." Consumers looking to up their potential loan status, need to embark on a journey towards improving their credit once and for all.
What is a Credit Score
Just like DNA and fingerprints are unique to an individual, so are their credit scores. The mathematical equation of a credit score provides lenders a simple and objective way to evaluate the credit history and overall risk of loan applicants. The system awards points based on information documented in an individuals credit report and that number is compared with the information of other similarly categorized consumers as a way for loan providers to gauge the likelihood of timely, loan repayment.
The Fair Isaac Corporation produces the most common system used in the nation. It is this organization responsible for the FICO score system on which the Experian, TransUnion, and Equifax credit bureaus rely on for information. Credit scores range from 300 to 850, and the best loan rate opportunities are currently reserved for consumers breaking the 780 point. An algorithm based on the following behavior determines the final credit score:
- Payment History=35 percent
- Types of Credit Used=30 percent
- Amounts Owed=15 percent
- Length of Credit History=10 percent
- New Credit=10 percent
With dedication and effort, potential borrowers have the ability to tip the number scales in their favor.
Tips To Improve Credit Scores
Those with bad credit did not earn their rankings over night and the condition was probably fueled by a process of trial and huge error. Even those with credit scores barely breaking the 300 mark, can make the efforts to raise their score and improve their future ability for qualifying for the lowest mortgage rates possible. Dedication and knowing how the system works are essential components to raising credit scores:
- Order Your Free Credit Report: An honest evaluation of a consumers existing credit score will help individuals set realistic goals for improving the final number. Courtesy of federal law, credit agencies are legally required to provide consumers with their credit scores on an annual basis and for free. The only government approved website for this purpose www.annualcreditreport.com. Consumers will be required to provide their Social Security number and in return will receive the free information from the three big credit bureaus.
- Review Documentation: Mistakes happen and individuals will be responsible for conducting their due diligence in reviewing and correcting any errors they may discover. Contacting the original creditor in a well constructed letter and proving innocence with documentation such as communication and bank statements will make them reevaluate their records and change the status they have assigned you. Even if the creditors do not agree with your version of the story, credit bureaus provide consumers with a 100 word space for logging an explanation.
- Determination: If credit scores are accurate, consumers must modify their behaviors to improve their information. Those steps include a reduction of use in available credit, making sure payments are on time and making a commitment to paying down existing debt.
- Budgeting: Living beyond one's means is so 2001 and building and sticking to a budget can help consumers determine total expenses versus total income. After the budget is set, following it to a T will help turn the tide on past behavior.
- Patience: Creditors have no date schedule for when they report their findings to the credit bureaus and consumers may have to wait several months to see improvements in their credit scores.
Although improving credit ratings can take a lot of effort, the results (in the form of lowered charges for borrowing money) will be well worth the effort.
Final Steps for Low Mortgage Rates
While credit history is one important factor for getting the lowest mortgage rates possible, it is not the only one that is important. Loan applicants will need the proper documentation to indicate revenue from employment and freelancers will be under the greatest scrutiny of this process. Additionally, many lenders may lower mortgage rate offerings for consumers able to put down a sizable down payment of 20 percent or more.
After all paperwork is in order and the financial house is well organized, comparison shopping is the best way to ensure finding the lowest mortgage rates possible. Mortgage Marvel can make the task easier as we have the power to gather accurate mortgage rates information from hundreds of lenders, and simply provide the rate information in an easy to understand comparison table.