How to Get a Low Interest Home Loan

by Jerry Work
With interest rates lower than they have been in 20 years, this seems like the ideal time to borrow money for a home. It is now possible to pay less than 5% interest on a home loan. It only take a couple of percentage points on a loan to make a large difference in the amount of your monthly payment. Unfortunately, compared to the last few years, it is now much more difficult to get a loan.

As bank losses from bad loans have mounted, they have become much more strict about to whom they grant credit. Banks have been stung so badly on loans made to questionable borrowers over the last few years that they have now completely changed course and don't really want to lend money to anyone (and why would they, with the government giving them money for nothing?). So the situation we have today is lots of people badly needing to borrow or refinance a home loan, super low interest rates, but a banking system reluctant to do business with anyone.

Given these difficult circumstances, is it even possible for the average person to get a low interest home loan? As is typically the case in a borrowing situation, it all starts with your credit rating. Credit ratings are plummeting as home owners all over the country struggle to keep up with their mortgages. If you want to borrow to take advantage of the fantastic rates being offered today, it helps tremendously if you are able to keep making existing loan payments on-time. The better your credit score, the better your chance at getting a low interest home loan.

You are probably also going to need some cash for a decent down payment. Gone are the days of getting a home loan for nothing down. If you want the low mortgage rate, you need to have cash in hand. An alternative is if you have an existing loan through a government agency, which may qualify you for a new government-backed loan.

Veterans of the American military will have an easier time getting a low interest home loan. The Veterans Administration loan program attaches a government guarantee to a loan written to a veteran by a bank. Another advantage of this kind of loan to a veteran is that, since it is guaranteed, mortgage insurance is not necessary.

One thing to avoid, if your intention is to get as low an interest rate as possible, is a jumbo loan, which is usually a loan over $417 thousand. These loans have traditionally warranted higher interest rates, but recently that spread has increased, and a jumbo loan will now cost you about one and one-half percentage points more than a smaller loan.

So yes, you can get a low interest loan, but you better have your ducks in a row, so to speak. Do everything you can to clean up your credit, save up some cash, and avoid borrowing in excess. It also helps if you are in the military.

About the Author

If you are shopping for a home in the Nashville, Tennessee area, contact Nashville real estate professionals We Sell Nashville Real Estate. We Sell Nashville real estate are true professionals who work with their clients to find the perfect Nashville home at just the right price.