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Can low mortgage rates help me qualify?

[Oct 12, 2011.]


Mortgage lenders are looking for three things when they evaluate you for a mortgage:

  • Your ability to repay the home loan, based on your income and your monthly obligations

  • Your will to repay debt, based on your credit history

  • Your ability to invest in the property with a down payment or home equity

If you have been unemployed or underemployed, you may not have the income to qualify for a mortgage. If you have had financial problems, as so many Americans have had due to the recession, your credit score may be too low to qualify for the super-low mortgage rates that are advertised by lenders. Even if your personal finances are in good shape, you may not have the savings to make a large down payment or, if you already own a home, your home may have dropped in value so you have less equity.

FHA mortgage option

While lenders must follow strict guidelines on conventional loans, they are allowed to have looser rules with FHA mortgage loans. Depending on the lender, your credit score can dip as low as 620 with an FHA mortgage and the down payment requirement is 3.5 percent, all of which can be a gift from a relative. You can refinance into an FHA loan as long as you have equity in your home of at least 3.5 percent. The downside of FHA loans is that you do have to pay mortgage insurance, which adds to your monthly payment. Be sure to compare your options for an FHA mortgage as well as a conventional mortgage to see which meets your needs best.

You may feel your past credit problems disqualify you for a mortgage or that you lack the cash to buy a home, but until you discuss your specific circumstances with a lender you cannot know for certain about your potential options for a new home loan. If you qualify at today's low mortgage rates, you may find that your cash flow will improve and you can meet other financial goals such as reducing your debt or improving your credit score.

For refinancing options in your area, go here, and for a new home loan in your area, go here.


About Author:

Michele Lerner is a freelance writer with twenty years of experience writing articles and web content for newspapers and magazines on topics related to real estate, personal finance, and business.

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