Mortgage rates are at an all time low, but most first-time home buyers won’t be able to take advantage of the best rates advertised. Here’s why…

Loan History

Even if you are not currently carrying a large amount of outstanding debt, lenders look at loan history, especially large installment payments. They do this to see if you have shown responsibility in handling a large loan. On-time payments and prompt pay-off can be an indicator of how you will perform as a borrower in the future. Many first-time buyers have not established a strong payment history, which can make it difficult in getting that first mortgage without higher rates and fees.

Small Down Payment

First time homebuyers can be at a disadvantage as they do not have a cash profit from selling a previous home to offer as a substantial down payment. With lenders now tightening their restrictions and usually requiring 20% down this large sum of money can be difficult to obtain. Without the downpayment you will probably see a higher interest rate. Larger mortgages come with higher interest rates, and loans with small percentages down are seen as higher risk to the lender. Many lenders will charge a higher rate based on their assessment of the loan’s risk.

Negotiating Skills

First-time borrowers should make the time to shop around for mortgages. You should also do your homework and become familiar with mortgage terminology, different loan packages and options, FHA programs and creative ways to secure your loan. Many first-time buyers are unaware of the many options available to them and lack the experience to negotiate better terms.

Finally, make sure that your credit score is up where it should be (above 700) and that you have steady income from a reliable employer. Both of these criteria will make a significant difference in your interest rate.