Four Strategies for Lowest Mortgage Rates

If you've had some credit problems in the past, you probably won't qualify for a lender's best mortgage rate. But there are some proven strategies you can follow to get the best mortgage rate possible for your personal situation.

Short of winning the lottery, the proven way to build wealth is by baby steps. Small, consistent steps in the right direction will help you improve your financial situation.

The same logic holds true when you're shopping for mortgages. If you've had some credit problems in the past, you may not automatically qualify for the best mortgage rate on the market. But you can take action to improve the rate that you do qualify for-baby steps that could save you big bucks over the long haul.

1. Make timely payments on your debts

Lenders base their loan decisions on your credit scores. If you have a history of late payments, your mortgage rate will suffer, because underwriters take into account your recent history. If you can show that you've made timely payments over the last six months, for example, a lender will see that you've got your house in order. You may qualify as less of a risk, and thereby receive a lower rate.

2. Perusing the market

No matter what your situation, there's likely to be a lender out there who wants to give you a loan. Considering the competitive nature of the financial industry, there'll probably be two, three, or maybe even more. Use the marketplace to your advantage. Shop around for a number of different lenders, get rate quotes, and let them know you're comparing rates. If a lender is desperate to build up his portfolio, he may overlook some of your past credit problems.

3. Be conservative with your credit

If you anticipate taking out a mortgage in the next two to three months, don't complicate the underwriting process by getting new credit cards or auto loans at the same time. Put a moratorium on creating any new debt until you've purchased the house. Any new forms of credit that you open between now and the time you apply for a loan could lower your score.

4. Pay down debt

Cash flow is a major issue for people with credit problems. If you've managed to get yourself headed on the right track, limit your spending and pay down existing debt. Credit scores are based not only on timely payments, but also on the amount of debt you carry.

Unless you rob a bank or write a bestseller, chances are that you're not going to get rich overnight. If you've had credit problems in the past, getting a great mortgage rate may be a long way off. You can, however, take the baby steps required to show lenders that you're not a risky borrower. The positive signs may just land you a slightly lower rate.