Mortgage rates are hovering at levels unimaginable a generation ago. But for many would-be home buyers, a low-rate loan has been tantalizingly out of reach, denied by tight-fisted lenders still skittish from the housing bust.
That’s finally changing. Now, thanks to rising home prices, less-stringent down-payment requirements and new rules that limit lenders’ liability when loans that meet certain criteria go bad, borrowers should encounter fewer obstacles getting a mortgage. No one wants to go back to the days of too-easy credit. But a little loosening will provide a shot in the arm for the sluggish housing market as it opens the door to buyers who have been shut out of the market and provides more options for all borrowers.
It’s still true that whether you’re buying your first home or trading up, the stronger your qualifications, the lower the interest rate you’ll be able to lock in. Borrowers with a credit score of 740 or more and a down payment (or equity, in a refinance) of at least 25% will get the best rates. You don’t have to meet those benchmarks, but if you don’t, you could see—in the worst case—as much as 3.25 percentage points tacked on to your rate.