Low mortgage rates are the best gifts for home buyers

Stack of bills wrapped with red bow

Missed out on those holiday shopping deals? Don't fret. The best deal awaiting you this year could be a new home loan.

With interest rates remaining near record lows, you should seriously consider adding a mortgage to your holiday shopping list, whether you’re looking to buy a new home or want to refinance.

The savings you lock in will be a gift that keeps on giving.

Just a couple of years ago, today’s rates would have looked like door-buster deals.

We’ve found advertised rates on 30-year, fixed-rate loans as low as 3.75%, with no points and application fees of less than $2,000.

Average rates also are a bargain, with several of the types of loans we track sitting near their all-time lows. And rates on 30-yar, fixed-rate jumbo loans set a new record low this month.

Our most recent mortgage rates survey will show you the average prices for home loans this week.

Search our extensive database of the best rates from hundreds of lenders to find rates for your target area.

Use our mortgage calculator to see what your payments would be for any fixed-rate loan.

While this is a great time to take out a new home loan or refinance an existing one, tougher loan standards mean about half of all homeowners couldn't get a loan if they applied today.

And a study by the Wall Street Journal found the nation's 10 largest lenders denied 26.8% of loan applications in 2010, up from 23.5% in 2009.

Most rejections occur for one of three reasons. Before you apply, follow our advice to improve your approval odds.

Reason for rejection: Poor credit score.

“Overwhelmingly, the most common reason consumers get rejected for a mortgage has to do with their credit scores. A poor credit score can cause an application to be rejected very quickly,” says Karen Carlson, director of education and financial literacy expert for InCharge Debt Solutions in Orlando.

Most banks require a minimum credit score of 640 for an FHA loan and 680 for a conventional loan, says Dante M. Royster, a consultant and licensed Illinois mortgage originator with ABS Home Mortgage.

Improve your odds: Before applying for a loan, get your free credit reports from AnnualCreditReport.com to look for any problems or mistakes.

Removing inaccurate information can give your credit score a bump in about 30 days and costs practically nothing. Just mark up your credit report with the errors you found, write a letter that explains the problems and ask the credit bureau to investigate.

If your low score isn't a mistake, follow our 7 smart moves to boost your credit score.

Reason for rejection: Too much debt.

Consumer and student-loan debt is one of the biggest reasons applicants get rejected, especially first-timers.

“A borrower who has total monthly debt ratios exceeding 40% of their monthly income may have a difficult time qualifying for a mortgage loan,” says Cal Haupt, president and CEO of Southeast Mortgage, one of the largest nonbank lenders in the southeast United States.

Improve your odds: “Pay off as much credit as possible prior to applying for a mortgage so that your ratio of used credit to available credit is as low as possible,” says Carlson.

Paying down your debt should improve both your credit score and your debt-to-income ratio.

Reason for rejection: Too little income.

Borrowers need sufficient income, assets and employment stability to support their monthly payments, down payment and closing costs. Lenders want to know where your money comes from and that you won’t be broke the minute your loan closes.

“All loans are now full documentation, so you need more than just a good credit score to get your loan done,” says Todd Huettner, a mortgage broker with Denver-based Huettner Capital.

Haupt says you should avoid trying to buy a home when the monthly payment, including property taxes and insurance, exceeds more than 30% of monthly gross income.

Improve your odds: Before you apply, Huettner says, you should get your documentation together, including two years of tax returns and W-2s or 1099s, 45 days of consecutive pay stubs and your two most recent statements for each asset account (e.g., bank accounts, retirement accounts).

“Your lender must review your income and asset documentation to be able to really know if you will qualify for a loan. You would not believe how many surprises show up on tax returns that enable or prevent someone from getting a loan,” he says.

Borrowers can head off some of these problems, like needing full documentation, by being prepared before they apply for a loan.

Others, like an unstable employment history, can only be resolved with time.

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