What the first time home buyer should know about home loan interest rates
If you're buying a home the interest rate that you get on your home loan will be a big factor in whether or not you can afford the home you want. 1% in interest on a 30 year mortgage can make a very significant difference in not only you monthly payment but in the overall amount that you pay over the life of the loan. Whether your credit is perfect or not so good, there are ways to save money on interest. Today I'm going to give you some idea's on how you can get a lower interest rate and save a lot of money on your mortgage.
FHA home loan interest rates
If your credit score is less than perfect, getting an FHA insured loan is one way to get a lower mortgage interest rate. Banks and mortgage companies are willing to make home loans available to buyers who do not qualify for prime rate mortgages at lower rates with an fha insured loan. Going with an fha home loan will not only save you money on interest, but it can also help you get into a home with less down payment and lower upfront cost.
Shop for the lowest home loan interest rates
If you have a great credit score and small debt to income ratio, you may qualify for a prime rate. However this doesn't mean that every lender will offer you a rock bottom rate on a home loan. But if you are fortunate enough to be in this position, you have bargaining power; and you should use it. Shop around for the lender that's willing to give you the best interest rate. However beware of loans with adjustable or variable rates. A lender may offer you a much better interest rate than other lenders, but the terms could end up costing you dearly. Be sure that what the lender is offering is a fixed rate mortgage.
Shorter term home loan interest rates
If you can afford a larger monthly payment, you can get a lower interest rate on a shorter term loan. i.e you may be able get a rate as much as 1% lower for a 15 year home loan than for a 30 year loan. This is a huge money saver. Not only will you save a ton of money with this lower rate, but you will save 15 years of interest. for a comparison, a $150,000 home loan financed for a 30 yr term at a 5% interest rate would give you a monthly payment of $1,498 per month with the total interest paid over the term being $164,464.00. The same loan over a 15 yr term would give you payments of $2,133 per month and only $94,402.00 in total interest paid. That's over $70,000.00 saved on interest; and I'm not even taking in to account the lower rate that you would get with the shorter term. I strongly recommend anyone who is able to make the larger monthly payment go with as short a term loan as possible. It's simply the smartest move you can make in buying a home.
If you're able to make a larger down payment, this too will save you money in interest.
Bad credit home loan interest rates
Getting a home loan with bad credit is much tougher than it was during the bubble era 5 years ago. However it is possible. But I never recommend anyone with a credit score lower than 620 get a home loan, and here is why. Getting a mortgage with a credit score lower than 620 is going to cost you a ton of money in interest no matter how much you pay down. Your best solution in this situation is to work on getting your score up enough to qualify for an FHA or VA loan. 620 is the minimum score to qualify.
No matter what your situation is, if you use a common sense approach and put some of these idea's to use you'll save money in your home loans interest rates
