Over the past few years, the poor economy and slow housing market has helped keep interest rates on new and refinanced mortgages at low levels never seen before. Because of the low rates, now is a great time for anyone to purchase a home and take out a new mortgage or attempt to refinance an existing mortgage. While mortgage rates on new and refinanced mortgages are extremely low, the high rate of mortgage defaults and lower housing prices have forced banks to tighten their lending standards. For those looking for good mortgage rates, getting the lowest rates will require you to meet various different pieces of criteria.

In order to qualify for a low rate on a mortgage, borrowers should expect that they will need to have a very good credit score. A few years ago, many lenders would give mortgages to people who had a credit score of as low as 600. Since many of these low-score borrowers ended up defaulting on their loan payments, banks have found it increasingly important to use a borrower’s credit score when determining whether they will be approved for the loan and whether they will be offered good mortgage rates. To qualify for the best rates, borrowers will likely need a score of 740 or better.

Getting low rates on a new or refinanced mortgage will also require a borrower to have equity in their home. Due to declining housing prices across the country, banks place far more emphasis on a borrower having equity in their home. To qualify for a new mortgage, borrowers will likely need to have at least 10% equity in their home in order to qualify for a conventional mortgage.

Having equity in your home is even more important for people looking for interest only mortgages. Banks typically prefer that people select amortizing loans because it means that the loan balance will decrease each month and the loan will be eventually be repaid. With interest only mortgages, the loan balance will never be paid down. Because of this, banks will want borrowers to put forth at least 25% in order to qualify for a long-term interest only mortgage.