Getting the Lowest Rate on your Mortgage Loan

Low mortgage rates are out there, but securing one is problematic.

In recent episodes of the game show Jeopardy!, the final questions have tested contestants' knowledge of British royalty, famous authors, 16th century philosophers, and Shakespeare.  While they're all interesting topics, the viewing public is much more interested in learning how to get the lowest mortgage rate on a home loan. While mortgage rates are lower than they've ever been, homeowners are still having trouble acquiring the cheap mortgage refinance that everyone keeps talking about.

The primary reason for this is the new conservative underwriting environment. The grand mortgage experiment of loosening up underwriting guidelines a few years back turned out to be a calamity.  As a result, lenders are returning to more conservative ways with a vengeance. That's why mortgage and mortgage refinance applications can be declined for many reasons, just as basis points can be tacked on to mortgage rates for tiny shades of risk.

Formula behind low rate mortgages

Navigating through this conservatism to lock in a low rate requires the right credit qualifications and some diligence. With respect to such qualifications, lenders offer low mortgage rate refinances and purchase mortgages to borrowers who:

• Have credit scores of 740 or higher. If you don't know your FICO score, discover this information so you'll know if you need to make improvements to your credit history.

• Have 20 percent equity in the home.

• Don't have a home equity line of credit. A HELOC balance reduces your home equity value and slows down your refinance funding.  Lenders will often charge higher mortgage rates to those who want to pay off the HELOC with refinance funds.

• Don't need a jumbo loan. The jumbo loan limit varies by geographic area; visit http://www.ofheo.gov/ to find the limit that applies to you.

• Pay points. These are upfront interest charges.  One point equals 1 percent of your loan balance, and paying it will improve your chances of getting a low rate mortgage.

• Have little additional debt. Lenders will analyze your total debt payments relative to your income to see how much mortgage you can afford. If the numbers indicate that your monthly budget is stretched thin, you won't get the lowest mortgage rates.

Shop, shop, shop

You might get lucky and find a low rate mortgage with the first lender you contact, but that's unlikely. Hit the pavement to check with local community banks and credit unions, as well as big name banks. In this credit environment, there could be wide ranges in the rates available to you from different lenders. The more you shop around, the quicker you'll recognize a low rate mortgage deal when you see it.

Now that you know how to get the lowest rate on your mortgage, see if you can phrase that answer in the form of a question. You never know when the topic might pop up on Jeopardy!