The headlines are buzzing: Mortgage interest rates have dropped to 3.6 percent for a 30-year fixed rate loan. Want a 15-year loan? You'll pay even less, maybe 3.25 percent.
Can you get a 3.65 percent interest rate? First, you have to understand that not every lender offers a loan carrying a super-low interest rate, and only people with the best credit need apply.
But there's more to the story. If you want to land the best loan with the best rate and terms, you'll need two things: credit and cash.
Many borrowers don't understand the direct link between your credit and your loan. The better your credit history and the higher your credit score, the lower your interest rate and the better your terms.
If you've missed some payments – or even if you're only 30 days late on one bill – your credit history is tarnished, your credit score reduced, and your interest rate will be far higher.
Your cash outlay
But don't forget about cash. These days, lenders want to see you walk through the door with at least 20 percent to put down on the property. If you don't have at least 20 percent equity (if you're refinancing) or 20 percent in cash for your down payment, your interest rate will be higher.
For example, if your credit score is 760 to 850 and you have at least 20 percent equity, you're in the highest credit tier, which means you might qualify for an interest rate at 3.282 percent on a 30-year fixed rate loan or less than 3 percent on a 15-year fixed rate mortgage.
But if your credit score drops into the second-highest tier (700 to 759), you might only qualify for a 30-year loan at 3.504 percent. To be sure, a loan at 3.5 is still a historically amazing rate. In fact, today's interest rates are so low that you might qualify for a loan below 4 percent even if your credit score is a 660. But you may need to have as much as 50 percent in equity or for your cash down payment.
The right lender
The key to finding a great loan with a terrific interest rate is finding the right mortgage lender to give it to you. But here's where it gets a little sticky. There are plenty of lenders who don't want your business. They might be overweighted with bad real estate loans, or they might not need any loans from people with less than perfect credit scores, even if you have plenty of equity in the property.
But instead of telling you they don't want your business, they'll just quote you an interest rate or loan terms that are, shall we say, less than palatable. By comparison, these quotes will look downright expensive.
Of course, if you don't shop around for a lender, you won't know that you're being quoted an interest rate that's too high or offered a loan program that doesn't make sense for your finances. So talk to a variety of lenders and make sure you understand exactly what you need to do to close on a loan that offers an interest rate for less than 4 percent.
First Capital is a leading Californiamortgage banking firm backed by the financial strength of PHH, the fourthlargest retail mortgage originator in the country.
Ilyce Glink is an award-winning, nationally syndicated real estate columnist, blogger and radio talk show host, and managing editor of the Equifax Finance Blog. Follow her on Twitter @Glink.
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