Save Money on Your Mortgage Rate

Your Credit Score

Your credit scores play a major role when lenders review your mortgage loan application. Most take the median of your Equifax, Experian, and TransUnion scores to decide on your rates. A score about 650 will get you solid rates on your loan, and a score in the upper 700s will save you even more. Make sure to check your credit report-which some online services allow you to view for free-several months before applying for a mortgage loan to guarantee that the information is correct, and to give you some time to boost your score-if need be. Let's say your credit score is below 650.

There are a few different things you can do to boost it and potentially save you money:

• Bring the balance on any credit cards you have to below 40% of your credit limit
• Stabilize your accounts
• Make sure all your payments are in on time
• Avoid applying for further credit
• Correct any errors in your credit report

Reduce Your Debt

Lenders use your debt-to-income ratio, also known as DTI, to judge how much you can borrow for your mortgage loan. It's calculated by taking yourb monthly income (before taxes) and dividing it by any current debts you may have-a simple calculation that you can do yourself. If your DTI ratio is lower than 30%, it will be far easier to get a mortgage loan with affordable payments. If your DTI is too high, try and pay off your credit cards-but don't close the accounts; closing them can actually hurt your credit score. You should attempt to pay off any other small loans you have active. Lastly, you can co-sign with a partner to increase the income half of the ratio.

A Better Loan-to-Value Ratio

The last important factor in lowering your mortgage rate is the down payment, which is calculated using your loan-to-value (LTV) ratio. This ratio is determined by dividing the amount of the loan you're applying for by the price of the house. Lenders want an applicant with a LTV ratio over 80%. Many borrowers, especially first timers, pay a low down payment or none at all (through special financing offers). If your LTV ratio is below 80%, it's likely that you'll be forced to pay private mortgage insurance. You can easily improve your ratio by putting down a larger down payment or searching for a cheaper home.

Check out our mortgage lingo page and learn the tricks of the trade.