With interest rates at near-record lows, the past few years have been a great time to buy a new home.
But now, despite the recent motion by the Federal Reserve to raise its fund – a move that was believed to surely raise interest rates – mortgage rates are about to do the exact opposite, potentially creeping even as low as the 2 percent range. It’s great for would-be homebuyers, but not exactly great for the economy as a whole. Yet, the foreseeable future looks like it’s going to be a grand time to secure financing on a new home.
Why Lower Mortgage Rates?
Simply put, mortgage rates are falling because there’s concern about the global economy. The stock market today is highly unpredictable, volatile and largely negative. As a result, stocks aren’t selling and investors are instead buying bonds – a safe alternative to stocks. The yield on the Treasury follows suit in these cases, thereby forcing mortgage rates to drop as a result. Rates were at record lows in 2012 because of this and many experts think that they’ll be returning to these record lows – if not dipping even lower – in the near future.
According to most market experts, lower rates aren’t ideal for the economy. Most agree that average rates in the 5 percent range are ideal. Yet in the current real estate market, which is expected to surge this spring as homes prices rise due to a lack of inventory, it’s these lower rates that can help consumers get more home for their money and better navigate the looming sellers market.
How to Qualify for Low Interest Rates
So just how can you qualify for these low mortgage rates? It’s best to do your homework ahead of time and know what type of buyer you are. Here’s a look:
Credit score: If your credit score is at or above 720, you’ll likely receive a good interest rate. The lower you get beyond this score, however, and the greater your interest rate will be due to your status as more of an at-risk consumer. If your score falls below 620, you may not even be approved for a mortgage at all. The bottom line is that if your credit score isn’t up to par, make sure you enact some credit repair strategies before you go through the mortgage process.
Job stability: Lenders don’t just like to see a good credit score, but that you have stability in other aspects of your life – such as employment. Therefore, if you’ve been at your current job for at least 2 years, you’ll likely receive a more favorable interest rate than if you jump around from job to job every so often. The latter can cause lenders to perceive you as more of a high-risk consumer.
Equity: Here’s a tip: lenders love conventional home loans where you put 20 percent down. Why? Because the more equity you have in your home, the less at risk the lender is on the deal. So whether you’re refinancing or buying a new home, make sure you follow the 80-20 rule for the best rate – put at least 20 percent down and finance the remaining 80 percent.