Mortgage Rates Are at All-Time Lows. Should You Apply Now?

Rates are low, but is now the right time for you to apply for a mortgage? Ask yourself these questions to find out.

Rates are low, but is now the right time for you to apply for a mortgage? Ask yourself these questions to find out. 

Most people rely on a mortgage to buy a house and take decades to repay what they've borrowed. Since a mortgage is such a substantial debt, finding the best possible terms is key. And for some would-be homeowners, the current record-low interest rates might help them find the right loan. 

But just because mortgage rates are at all-time lows doesn't mean it's the best time for everyone to apply. Whether you're considering getting a mortgage to buy a home or refinancing an existing home loan, you still need to be sure it's actually the right time. 

Are you financially ready to buy a home?

Before you decide to apply for a mortgage, you need to make certain you're really ready for the responsibility of homeownership. After all, it doesn't matter how low the mortgage rate is if you can't afford to pay it and cover all the other costs that come with homeownership. 

You should have a stable job -- and ideally should've been with the same employer for the past few years. Your mortgage company is going to want to make sure you've got reliable employment, especially as jobless claims hit record highs. They'll compare your income to your debt too (including the mortgage you're proposing to take on) to make sure you aren't getting in over your head and borrowing more than you can easily repay.  

You'll also want a hefty emergency fund in place that can cover three to six months of living expenses. That means you won't have to worry about how you'd pay your mortgage if something happens to your income or if you or a loved one gets sick, especially during these uncertain times.

Other items to check off your list include making sure you can pay the closing costs, as well as any home repairs and maintenance that are likely to come up once you've moved in. And you'll want cash for a down payment as well. Shoot for a 20% down payment if possible, as you don't want to end up owing more than your home is worth. It's unclear yet how much downward pressure a coronavirus recession will put on home prices. A down payment of at least 20% will also mean you don't have to pay for private mortgage insurance, which protects your lender in case you default, but which provides you with no protection against losses.  

Finally, you'll want to make sure you're going to stay put for at least two years and ideally more like five. That's how long it could take you to recoup the costs associated with your purchase and, if needed, wait out any downturn in the market so you can avoid selling your home at a loss. 

Overall, you may be an ideal candidate to take advantage of the current opportunity to get a really affordable mortgage if:

• You've got plenty of cash in the bank to cover mortgage costs
• You're confident relocating isn't in your immediate future
• You've got a stable job

Can you actually qualify for a mortgage at these record low rates?

Even if you're financially ready for a home loan, there's one more hurdle to jump: You've got to be able to qualify for the low-rate loans banks are offering right now. And that means you need a good or even excellent credit score.

Your credit history is always important when banks decide whether to give you a loan and what rate to charge for borrowing. But if banks tighten credit standards in response to the current economic volatility, then they're likely to get even stricter with regards to who can get the best interest rates on loans.

If your credit score doesn't make you their ideal customer, you'll want to try to boost it if you can -- before getting a mortgage. This could mean writing a goodwill letter to creditors asking them to remove negative information or taking other steps to raise your score ASAP. It could also mean waiting a little while to borrow until these efforts pay off. It's worth making this effort, as even a small change in your mortgage interest rate could make a huge difference in total costs since you're borrowing so much and paying off the loan over such a long time period. 

Can you overcome the current challenges associated with a home purchase?  

The last thing you need to consider is how you will physically pick out and buy a home during the great lockdown.

Fortunately, this obstacle can be overcome with a little creativity. Many real estate agents are doing virtual showings now so you can narrow down which houses you actually need to see in person. You can wear a mask when visiting, stay in the home for the shortest time possible, and stay six feet from your agent. You can also do a virtual closing where you sign all your paperwork online with most title companies. 

It may be difficult to buy a home during the coronavirus pandemic. But if you're financially ready to make the purchase and you can qualify for today's record-low rates, you may just decide that moving forward and buying now is the right decision for you.