Best Mortgage Loan for You May not have the Lowest Rate

Lots of sites are already listing the best mortgage loans of 2020, but the best mortgage loan program for you isn’t cut and dried.  Other factors affect what is more beneficial to each borrower.

Photo by Matthias Zomer from Pexels
  1. Credit Score.  You credit score is not static.  It changes depending on purpose of the credit pull and on your recent credit behavior.  For instance, if you charged a lot on a card and now owe more than half the credit limit, your score may drop.  If you recently took out a personal loan and requested a credit limit increase on a card the combination could look as if you are overspending for your income.  The appearance of an inability to manage your money can result in a credit score drop.  The higher the credit score, the better your loan term options, but sometimes you need a mortgage before you can raise your credit score.  There are enders who specialize in loans made to borrowers with FICO scores as low as 500.
  2. Seasonal income Changes.  If you work in the construction industry, and get laid off every winter, this may not be the right time to refinance or to buy a home.   If you have done this for several years and have saved up for a good sized down payment, your lender may be willing to take the risk.  If you have worked construction for less than two years and have been laid off, a lender may not want to offer a mortgage loan at this time.
  3. Debt to income ratio.  If you have to pay more than 45% of your gross monthly income to creditors, you are considered more of a lending risk than a borrower who must pay less of his gross monthly income on debt.
  4. Loan amount percentage of home value.  If you are trying to borrow an amount that is almost as high as the current home value, lenders may either increase your interest rate or deny your application.  More buyers will walk away from a loan worth more than their home is worth if they face financial hardship.
  5. Purpose of the home loan.  Purchase money mortgages and home improvement mortgages are deemed lower risk mortgages by underwriting software.  If the purpose of your home mortgage loan is for either, you may find many options.  But keep in mind there are still unique loan programs that work best for your situation.

There are things you can do to improve loans available to you.  By making your payments to other creditors on time, keeping credit balances reasonable and employment steady, you look like a better risk to a lender.  The lower the risk, the less interest rate has to be.  Most of this is within your control and just requires a little organization to simplify the process. 

More good news is that interest rates for 2019 were historically low and have not yet risen.  If you qualify for the fixed rate mortgage, it might be a better option than the adjustable rate mortgage with the slightly lower interest rate.  The adjustable mortgage could cost you more down the road when interest rates begin to rise.  Look at all the loan terms and your own needs; not just the interest rate and initial monthly payments.  In a purchase situation, sometimes a low down payment matters more than the bottom interest rate.  If you are looking for a refinance for home improvement, but just refinanced last year, maybe a home equity loan or line of credit in a smaller amount would be a better option.  Talk to more than one mortgage professional about your mortgage.  It may help you crystalize in your own mind what your priorities are and what you are looking for in a loan officer.  Visit to be matched to a licensed mortgage originator in your area with answers to the questions you have.