Can a Great Credit Score Guarantee the Best Mortgage Rates?

Posted by  on Jul 20, 2009

An excellent credit score will certainly help you get lower mortgage rates, but it won't automatically guarantee you anything. In addition to credit, mortgage lenders inspect a few other things before issuing their best loan rates. One thing lenders are paying very special attention to is how much equity you are willing to commit. When buying a new home, the larger the down payment, the better your chances. For refinancing homeowners, better loans are available to those with the most equity. Then there is the all-important debt-to-income ratio. An acceptable ratio means the underwriters believe that your income adequately covers your obligations--both housing and other monthly bills. And finally, your lender prefers borrowers with liquid assets--and no,your baseball card collection doesn't count. Lenders want "reserves," which are investments or cash that can be quickly accessed to pay your mortgage in the event of a financial setback. More reserves equals a less risky borrower--and a better rate.

First Make Sure You Have "Great" Credit

Before making any assumptions, double check your credit standing. Mortgage lenders are concerned with every single point, and it's a common mistake for individuals to assume their score is higher than it is. Most lenders will take the middle credit score of the three bureaus, and place you in a certain mortgage pricing category based on their credit scale.So if your middle score is 739 and you need to have a 740 for the best mortgage rates, you can't get them until you improve that score to at least 740.

Up to You: Getting the Best Mortgage Rates

Now, suppose you do have the perfect credit score and meet all lending requirements with flying colors. Surprise, surprise--you still won't be guaranteed the best mortgage rates. The final factor is your ability to shop around and compare various mortgage lenders. You won't have to sit down for an hour with every lender, but it's a good idea to review lenders online and compare mortgage rates from different banks. At a time when markets seem so unpredictable, taking care of these preliminary steps during the mortgage process will put you in perfect position to snag the best mortgage rates available.


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