Mortgage interest rates are tied directly to the risk profile of the borrower. The lowest interest rates are offered to those with good credit history, employment stability, sufficient income to justify their home budget, including all debt, and the transparency of documentation to prove all of the above.

Interest rates may be lowered even more if the borrower chooses an adjustable rate mortgage. Adjustable rates make sense when planning to sell a home within a few years, before the higher interest rate kicks in, or when there is a high confidence of increased future earnings. The downside of the adjustable rate mortgage is visible in today’s market as many home owners are unable to sell at a breakeven price and cannot afford the increased monthly payment when the higher interest rate has taken affect. Be careful out there!

The borrower may also buy down the interest rate, which is essentially a pre-payment of interest and increases the amount of cash due up front. If the goal is to obtain the lowest interest rate with the lowest down payment and the least amount of cash up front, then consider a Federal Housing Administration insured loan.

The FHA guarantees the mortgage to an approved lender, removing the risk to the lender, which justifies offering the lowest interest rate. The FHA will guarantee mortgages with as little as 3% down payment (3.5% after October 1st, 2008), but remember to factor in the Mortgage Insurance premium when the down payment is less than 20% because it is a qualifying condition and will add to the monthly payment. Here are two links for FHA information:

* FHA web site for FAQ: http://faq.fha.gov/cgi-bin/ans wers_hud.cfg/php/enduser/std_a lp.php?p_sid=WUC5MYbj

* Lending limits and other FHA information:
http://www.fha.com/important_f acts.cfm

Local and state governments often have incentives available if purchasing a home in a specified area. These areas are not necessarily blighted neighborhoods; a little research might save the home buyer plenty of money and/or increase the amount of home that can be bought without increasing the monthly budget.

For example: How nice would it be to receive a full 20% down payment on a home with no obligation to repay? Want another $10,000 to do some remodel work? No problem. Conditions and restrictions apply, but they are usually reasonable and minimal and available in most cities across the USA.

Buyers who do their due diligence will be rewarded.